Karnataka High Court
Tracstar Investments Pvt. Ltd. vs Deputy Commissioner Of Commercial ... on 13 April, 1994
Equivalent citations: ILR1994KAR1181
JUDGMENT Shivaraj Patil, J.
1. The petitioner has filed this writ petition praying for the following reliefs;
(1) To issue a writ/order in the nature of certiorari quashing the notice issued by the first respondent under section 14 of the Karnataka Sales Tax Act, 1957, dated December 13, 1993 and December 16, 1993 (annexures A and B).
(2) To declare that the second respondent is not obliged to make any payment in future in view of sub-section (5) of section 14 of the Act.
(3) Grant such other relief or reliefs as this honourable Court may deem fit in the circumstances of the case.
2. The material averments made in the writ petition are :
Notices under section 14 of the Karnataka Sales Tax Act, 1957 (for short "the Act") were issued by the first respondent to the second respondent to pay money due or may become due to the petitioner to the department. Section 14 of the Act provides for the recovery of tax from the debtors of the defaulter-dealers and the proceedings are in the nature of garnishee proceedings. Under these proceedings, a stranger is served with a notice not to pay his own creditor but to some other person who has obtained a final judgment against that creditor. To initiate garnishee proceedings, there must be an enforceable debt.
The expression "may become due", "may subsequently hold money" applies to what may become due or may be subsequently held pursuant to relationship such as that of a manufacturer and a wholesaler, employer and employee between the assessee and the garnishee on the date when the notice is issued.
Sub-section (5) of section 14 of the Act provides for objection by the garnishee denying his liability to the dealer on the date of the notice. In such an event section 14 of the Act cannot be availed of.
Section 12B of the Act provides for the payment of advance tax every month on the basis of monthly returns furnished by a dealer. In case a monthly return filed is incomplete or incorrect, the assessing authority may proceed to assess the dealer provisionally for that month to the best of his judgment by recording reasons after affording an opportunity of hearing to the dealer concerned. A demand notice would follow in form No. 5 pursuant to such assessment order. If the amounts demanded are not paid, the assessing authority gets jurisdiction to initiate proceedings for recovery of tax due under the Act from a defaulting dealer.
The petitioner-company is a manufacturer of Indian made foreign liquor (IMFL). Their main supply of liquor is to the second respondent, which is a State agency for supply and distribution of IMFL liquor to wholesale traders in State of Karnataka. The petitioner is a registered dealer under the Act and under the provisions of the Central Sales Tax Act borne on the file of the first respondent. Petitioner is regular in paying taxes due under the Act. Business arrangement between the petitioner and the second respondent under the agreement is that the second respondent would advance excise duty to the petitioner for the supply of IMFL liquor. On receipt of such advance excise duty, the petitioner remits the same to the Reserve Bank of India and supply their brands of IMFL to the second respondent. The second respondent in turn after sales and realisation of the sale proceeds would be paying the petitioner-company only basic price and sales tax as the duty would have been already paid in advance. Due to acute labour problems in the manufacturing unit, various circumstances beyond the control of the petitioner and earlier commitments with financial institutions, the petitioner was unable to pay the entire advance tax liability along with the monthly returns. For recovery of tax dues, the first respondent without there being a processional assessment order and without there being a demand notice as required under rule 17(2) has resorted to the garnishee proceedings by issuing notice to the third person under section 14 of the Act directing them to make payment of the amount due to the petitioner towards sales tax dues. In response to the said notice, the second respondent addressed letter, annexure C, dated December 30, 1993, to the first respondent asserting that on the date of the notice they did not owe any amounts to the petitioner-company and they have stopped payment of excise duty to the petitioner in view of the notice, which has resulted in non-supply of IMFL liquor to the second respondent leading to huge loss to the State Government. Hence, this writ petition is filed principally contending that proceedings under section 14 could be pressed into service only when the other person is due with any amounts or may subsequently hold money to the assessee-defaulting dealer. In the present case, second respondent has categorically asserted in annexure C that it did not hold any amounts of the assessee on the date of service of notice, as such declaration is to be made in favour of the petitioner declaring that the second respondent is not obliged to pay the sun as demanded. The respondent No. 1 could not initiate proceedings for recovery or issue notice under section 14 without passing a provisional assessment order as required under section 12B(2) as the monthly returns filed by the petitioner under section 12B were incomplete for want of payment of advance tax, inasmuch as cheques given by the petitioner were dishonoured.
3. The first respondent has filed the statement of objections contending that the petitioner is not entitled for any relief sought for in this writ petition for various reasons stated therein. The petitioner has submitted monthly statement in form 3 along with advance payment of tax by way of cheques as provided under section 12B(1) of the Act. All the cheques issued by the petitioner in respect of the advance tax were dishonoured by the bankers for want of funds. Thereupon, the first respondent issued notice to the petitioner in form No. 5 as per rule 17(2) of the Karnataka Sales Tax Rules, 1957, demanding payment of the admitted advance tax. Since the petitioner did not respond, the first respondent initiated recovery proceedings by issuing impugned notices to the second respondent under section 14 of the Act. The petitioner having effected the sale of liquor and having collected the tax has not remitted the same to the Government. The petitioner has no authority to retain the amount of tax collected by it. The petitioner is utilising the Government revenue to his business. Under the circumstances, the recovery proceedings initiated are justified.
It is the further case of the first respondent that admitted tax collected by the petitioner is to the tune of Rs. 1,62,46.345. The petitioner is trying to avoid the tax liability by filing this writ petition on technical ground. According to the first respondent section 12B(2) shows that it is only in case an assessee fails to submit to the assessing authority the monthly statement along with advance tax as contemplated under sub-section (1) of section 12B or if the statement appears to the assessing authority to be incorrect or incomplete, the assessing authority may make a provisional assessment order. In the instant case, the assessing authority has no grouse as far as monthly statements submitted by the petitioner are concerned, hence, the question of passing an order under section 12B(2) does not arise. The assessing authority has accepted the monthly statements made by the petitioner as true and correct. The very fact of the petitioner issuing cheques is sufficient to hold that he had made payments of the admitted tax shown in the monthly returns. It is not the case of the assessing authority that the monthly returns submitted by the petitioner were either incorrect or incomplete. Hence, the petitioner is in arrears of the admitted tax and the amount covered by the tax "is an amount due" for the purpose of recovery under section 13 of the Act. Under the circumstances, complying with the provisions of section 12B(2) was not necessary. Relying on the decision in the case of Varalakshmi Enterprises v. State of Karnataka it is contended that the advance tax payable under section 12B(1) falls in the category of "any other amount due" and is recoverable under section 13. The Petitioner is habitual defaulter and is not entitled for the reliefs sought for. Under the circumstances, the first respondent sought for dismissal of the writ petition.
4. Sri H. L. Dattu, learned counsel for the petitioner, contended that :
(1) The petitioner sent monthly statements under section 12B of the Act accompanied by cheques towards payment of advance tax. When the said cheques were dishonoured or bounced such statements should be considered as incomplete or incorrect. If that be so, the assessing authority should have assessed the dealer provisionally to the best of his judgment recording the reasons for such assessment after giving reasonable opportunity to the dealer of being heard and thereafter proceeded to demand and collect the tax on the basis of such assessment. In this case in the absence of any provisional assessment order the authorities could not demand and collect tax.
(2) Under section 14 of the Act the assessing authority at any time or from time to time can issue notice in writing requiring any person from whom money is due or may become due to the dealer or any person who holds or may subsequently hold money for or on account of the dealer to pay to the assessing authority either forthwith upon the money becoming due or being held at or within the time specified in the notice. In this case, the second respondent as per annexure C replied to the notices, annexures A and B, stating that as per their business terms as on the date of receiving notices no amount was due to the petitioner. Hence, the notices, annexures A and B, impugned in this writ petition are to be quashed and that a declaration may be given that the second respondent is not obliged to make any payment in future in view of section 14(5) of the Act.
In support of his submissions, the learned counsel placed reliance on the following decisions :
(1) [1964] 52 ITR 321 (Mad.) (Buddha Pictures v. Fourth Income-tax Officer, City Circle V, Madras) (2) (Income-tax Officer, Madras v. Budha Pictures) (3) (Madan Lal Lohia v. Assistant Controller) (4) [1988] 173 ITR 164 (Bom) [Mcdermott International Inc. (No. 2) v. Union of India] (5) (Sri Balaji Rice Company v. Commercial Tax Officer No. I, Nellore) (6) (Hyderabad Co-operative Commercial Corporation Ltd. v. Syed Mohiuddin Khadir).
5. Sri H. G. Ramesh, learned Government Advocate, based on the statement of objections filed, urged that :
(1) Passing of a provisional order of assessment under section 12B(2) of the Act would arise in case where no statement is filed before the date prescribed or statement filed appears to the assessing authority to be either incorrect or incomplete. In this case the petitioner has sent monthly statements under section 12B(1). The assessing authority did not find the said statements either incomplete or incorrect. Hence, question of passing provisional order to the best of his judgment did not arise. The cheques given by the petitioner along with the statement filed under section 12B(1) having been bounced, the amount covered by the cheques had become due and that amount should be deemed to be an amount due under the Act for the purpose of section 13 from a dealer. As such, there was nothing wrong in demanding or collecting tax from the petitioner.
(2) Looking to the business terms of the petitioner and the second respondent, the assessing authority was entitled to issue notices under section 14 with regard to the amount that may become due to the dealer.
(3) The petitioner having collected tax from public has sent cheques along with the statements filed under section 12B(1) of the Act, which cheques were not honoured for want of funds. The petitioner has suppressed about bouncing of cheques. The petitioner having not come to the court with clean hands cannot be allowed to utilise the amount, which was collected as tax from the public detrimental to the interest and loss of revenue of the State. According to him this Court on the facts and circumstances of the case may decline to grant any relief to the petitioner.
In support of his submissions, the learned Government Advocate, relied on the following decisions :
(1) (Jagannath Hanumanbux v. Income-tax Officer);
(2) (A. M. Allison v. B. L. Sen).
6. I have carefully considered the submissions made by the learned counsel on either side.
7. The facts which are not in dispute are the following :
The petitioner filed statements under section 12B(1) of the Act. Those statements were accompanied by cheques towards payment of tax in advance. The said cheques bounced. The assessing authority did not find the statements so filed either to be incorrect or incomplete.
8. Section 12B to the extent it is relevant is extracted below :
"12B(1) : Subject to such rules as may be prescribed, every dealer shall send every month to the assessing authority a statement containing such particulars as may be prescribed including the taxable turnover during the preceding month and shall pay in advance the full amount of tax payable by him under this Act within twenty days after the close of the preceding month to which such tax relates on the basis of the turnover particulars shown in the statement and the amount so payable shall for the purposes of section 13 be deemed to be an amount due under this Act From such dealer.
......................
12B(2) : If no such statement is submitted by a dealer under sub-section (1) before the date prescribed or if the statement submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority may assess the dealer provisionally for that month to the best of his judgment, recording the reasons for such assessment, and proceed to demand and collect the tax on the basis of such assessment.
.....................
12B(3)..............."
9. From the plain reading of section 12B(1) it is clear that the amount of advance tax payable on the basis of statements filed for the purpose of section 13 of the Act shall be deemed to be an amount due under the Act from such dealer. It need not be pursuant to a provisional order of assessment under section 12B(2).
10. Section 13(3) of the Act states that any tax assessed, or any other amount due under the Act from a dealer may without prejudice to any other mode of collection be recovered in any one of the modes stated thereunder.
11. In the case on hand, the petitioner did file statements under section 12B(1); the assessing authority did not find the statements so filed either incomplete or incorrect, hence, there was no warrant to pass a provisional order of assessment to the best of his judgment. But, the cheques given towards payment of advance tax did bounce, in that situation the amount covered by the cheques was payable towards advance tax that amount became an amount due under the Act for the purposes of section 13. Merely because the cheques bounced, the statements filed under section 12B(1) cannot be considered as incorrect or incomplete. Moreover, it must appear to the assessing authority the statements filed under section 12B(1) to be incorrect or incomplete. Further, it is an enabling provision to the assessing authority to assess the dealer provisionally for the particular month to the best of his judgment in the situation stated in section 12B(2). Hence, I am unable to agree with the contention advanced by Sri Dattu, learned counsel for the petitioner, that no demand or collection of tax could be made without passing the provisional order. I hold that the amount covered by the cheques accompanying the statements filed by the petitioner under section 12B(1) is deemed to be an amount due for the purposes of section 13 of the Act, as such under section 13(3) such an amount due could be recovered. Once I have reached this conclusion, I must state that the assessing authority could invoke section 14 of the Act for recovery of tax due from the petitioner.
12. The second respondent as can be seen from annexure C in response to the impugned notices, annexures A and B, has categorically stated that as on the dates of issuing those notices no amount was due to the petitioner by the second respondent having regard to their business terms.
13. Section 14(5) of the Act reads thus :
"Where any person to whom a notice under this section is sent objects to it on the ground that the sum demanded or any part thereof is not due by him to the dealer or that he does not hold any money for or on account of the dealer, then nothing contained in this section shall be deemed to require such person to pay the sum demanded or any part thereof, to the assessing authority."
14. In view of reply, annexure C, given by the second respondent nothing contained in the above section shall be deemed to require such person to pay the sum demanded or any part thereof to the assessing authority. Under the circumstances, In think it is unnecessary to go into the question as to whether any amount had become due or might become due to the dealer in view of the business terms between the petitioner and the second respondent.
15. In the view I have taken on the admitted facts of the case and having regard to section 12B, 13(3) and 14(1)(1) and (5) of the Act, I do not think it is necessary to refer to the decisions cited by the learned counsel for the parties.
16. The petitioner has collected cheques from public, which is a very heavy amount. The petitioner admittedly gave cheques towards advance tax based on his own statements filed under section 12B(1) of the Act though cheques bounced for want of funds. The petitioner has not stated in his petition about the bouncing of the cheques.
17. In para 15 of the writ petition the petitioner has stated thus :
"Apart from these technicalities, the petitioner does not intend to postpone the payment indefinitely but in view of financial constraints faced by the petitioner-company they are approaching this Court at this stage to pray reasonable time to make substantial payments towards the arrears of advance tax payable under the Act."
18. Having regard to the facts and circumstances of this case including what is stated in para 15 of the writ petition extracted above I do not find any merit in this writ petition.
19. In the result, for the reasons stated, I pass the following order :
(1) The writ petition is dismissed and rule is discharged.
(2) No costs.
20. Writ petition dismissed.