1/11 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 12th DAY OF DECEMBER 2017 BEFORE THE HON'BLE Dr.JUSTICE VINEET KOTHARI WRIT PETITION No.38213/2017 (T-RES) BETWEEN:
M/S JAI MARUTHI BAR AND RESTAURANT REP BY ITS PROPRIETOR GOWRAMMA AGED ABOUT 62 YEARS NO.1, KANTEERAVA STUDIO MAIN ROAD J.B.KAVAL, BANGALORE-560096.
(BY Mr. AKARSH S. KANADE, ADV.,) ... PETITIONER AND:
1. STATE OF KARNATAKA DEPARTMENT OF EXCISE BY ITS PRINCIPAL SECRETARY M.S.BUILDING, BANGALORE-560 001.
2. THE ASSISTANT COMMISSIONER OF COMMERCIAL TAX (AUDIT)-6.6, 3RD FLOOR, KIADB BUILDING PEENYA 2ND STAGE, BANGALORE-560058.
... RESPONDENTS (BY Mr. T.K. VEDAMURTHY, AGA) THIS W.P. IS FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER DATED 6.6.2017 PASSED BY THE ASST. COMMISSIONER OF COMMERCIAL TAX (AUDIT) - 6.6, DVO-06, BANGALORE (R-2) AT ANNEX-F. GRANT AN INTERIM ORDER TO STAY ALL FURTHER PROCEEDINGS PURSUANT TO THE ORDER DATED 6.6.2017 PASSED BY THE R-2 AT ANNEX-F.
THIS W.P. COMING ON FOR PRELIMINARY HEARING THIS DAY, THE COURT MADE THE FOLLOWING:-
ORDER Mr. Akarsh S. Kanade, Adv. for Petitioner Mr. T.K. Vedamurthy, AGA for Respondents 1. The controversy involved in the present case is squarely covered by a recent decision of this Court dated 14.11.2017 in W.P.No.33176/2017 (M/s. WS Retail Services Private Limited v. The State of Karnataka and Others) and connected writ petitions, interpreting the Provisions of ‘Karasamadhana Scheme, 2017’, promulgated by the Respondent – State. The relevant portions of the said decision are quoted below for ready reference:-
“23. In order to appreciate the rival contentions raised before this Court, one has to understand the basic Scheme of levy of tax, interest and penalty itself under the taxing statutes. While the ‘tax’ as per the charging provisions of these enactments is a compulsory exaction of tax from the subjects, the levy of interest even though the necessary corollary of tax is a compensatory levy in nature, to compensate the State for the loss caused to it by the non-payment of the due tax for the period for which it remains unpaid and the third component viz., ‘penalty’ which generally depends upon the presence of guilty animus or mens rea on the part of the tax payer, is also consequential and depends upon the amount of tax itself being first found to be due, because the calculation of the penalty amount is also based on the amount of tax itself.
24. The first essential component of the entire demand under the assessment orders under the tax laws is always the tax, thereafter only, the determination of interest and penalty can be made. If the tax itself is not due, the question of levying interest and penalty upon that does not arise.
25. Tax is at the Foundation of Demand under Tax Laws. Interest and Penalty take later or back stages. Take the analogy of 3 boxes in a puzzle game, one laid over another, where the bottom box is of Tax, the middle box is ‘Interest’ and top box is that of ‘Penalty’. That first two boxes of penalty and interest having the connecting hole at the bottom. If one was to fill up the water in all three of them, (clearing off the arrears of demand) unless the bottom box of ‘Tax’ is filled up, nothing will come in the middle box of ‘Interest’ and unless middle box of interest is filled up, nothing will come in the top box of ‘Penalty’.
26. This analogy reflects and explains the scheme of imposition of tax, interest and penalty in the Tax Laws and the Scheme ‘KSS 2017’ viz., first the arrears of tax have to be cleared off by the dealer and there is no waiver of tax amount in the Scheme. The waiver is only of arrears of penalty and interest to the extent of 90% is given, if 10% of the same is paid by the dealer.
27. The question which therefore arises is that whatever the amount is paid in pursuance of the assessment order or after the assessment order is passed by the Assessing Authority, whether it is described as a ‘deposit’ or ‘payment’ of tax or other amounts, such payment remains subject to the adjudication by the Appellate Authority or by the Courts, where the uncertainty of the entire demand raised by the Assessing Authority being deleted, reduced or upheld by the appellate authority exists.
Therefore, that deposit or that payment cannot be allowed to be ‘adjusted’ or considered as a general revenue of the State itself, unless and until the Appellate Authorities or the Courts determines the issues finally and subject to such decisions only, the ‘adjustment’ of the ‘payment’ or ‘deposits’ can be made by the Revenue Department. Until that is done, it remains the colourless deposit.
28. Since under the ‘KSS 2017’, the arrears of tax as well as the arrears of interest and penalty were to be determined in terms of the assessment order itself and remaining unpaid as on 15.03.2017, as required in Clause 2.4 quoted above, while scrutinizing the applications as per Clause 3.2 of the ‘KSS 2017’ itself, the Assessing Authority is not entitled to undertake fresh adjudication process of computing or adjusting the amounts deposited, in the manner he chose or applying the provisions of Section 42(6) of the Act.
29. The provisions of Section 42(6) of the Act, read in conjunction and on sequence with other Sub-sections of Section 42, upon a harmonious reading would reflect that normally assessee is expected to first square up its liabitlity to pay the tax with the returns itself and thereafter upon passing of the assessment order and if the amount paid falls short of the aggregate amount of tax and other amount (penalty) and interest payable, such amount paid shall be first adjusted against interest. This sequence of payments and adjustments under Section 42(6) does not govern the payments and adjustments subject to appellate proceedings under Sections 62 or 63 of the Act nor they are applicable to special Schemes like ‘KSS 2017’ in the present case. The said Scheme is a self contained Code in itself and envisages first the complete payment of tax assessed and then only 10% of assessed interest and penalty and therefore, adjustment of amount lying deposited or paid after the assessment order should also follow the same sequence and the order of preference.
30. Section 42(6) of the Act contained in only one of the eight enactments covered by the said Scheme, is applicable only where the assessments, payment of tax and other amounts, adjudicated by the Assessing Authority is happening in a normal course, irrespective of the existence of any special law like the ‘KSS 2017’. The Scheme ‘KSS 2017’ does not envisage any such ‘adjustment’ or adjudication but only talks of “work out the actual arrears of tax and penalty and interest payable by the Dealers”. This working out has to be done only as per the impugned assessment orders, which were the subject matter of appeals, revisions or writ petitions. The Revenue Authorities are not entitled to undertake the fresh adjudication or adjustment process which is not envisaged in the Scheme itself.
31. The amount deposited or paid by the dealer after the point of time of assessment orders, which is the subject matter of challenge, whether it is called a ‘payment of tax or other amounts’ or a ‘deposit’, does not give it the different colour or payment of demand in water tight silos of tax, interest and penalty and therefore, in the absence of any specific and clear provisions in the Scheme itself specifying as to how the amounts lying deposited with the Department during the pendency of the appeals etc., are to be adjusted, the Department cannot be allowed to take a pro-revenue approach like a money lender to first set off and satisfy the demand of interest and thereafter further call upon the Dealers to pay the arrears of tax, without taking into account the deposits already made by the dealer and the set off of such deposits in the first instance has to be made against the arrears of tax and thereafter, if some balance amount remains, the Department can adjust it against the interest and thereafter under the head ‘penalty’.
32. Unless this sequence of adjustment or computation of arrears is followed, it will defeat the very purpose of this beneficial Scheme which was promulgated to provide for the quicker recovery of arrears of tax and the Dealers giving up their right to challenge the very imposition by the withdrawal of their appeals.
33. As already stated above, unless the tax dues or the arrears of tax are first satisfied, the question of levying of interest and penalty itself may be without any foundation and therefore, the arrears of interest and penalty cannot be allowed to be first satisfied and adjusted out of the payments and deposits already made by the Dealers and thereafter still requiring them to pay the arrears of tax as per the impugned assessment orders, without taking into account the payments already made.
34. The normal and ordinary sequence of levying of these three components of demand namely, the tax, interest and penalty should be followed in the beneficial piece of legislation like ‘KSS 2017’ in the present case. The provisions of Section 42(6) of the Act cannot be given an overriding and encroaching effect upon the provisions of the Scheme itself, so as to permit the prior adjustment against the ‘interest’ head, as claimed by the revenue authorities. That will render the computation exercise under clause 3.2 tilted and biased in favour of the Revenue, rather than the normal and ordinary prudence in the computation of total tax and other demands under these enactments. In the considered opinion of this Court, the aforesaid manner of computation only serves the purpose of the Scheme and renders the Scheme practically available to the Dealers to avail the same for serving the twin objectives of the said Scheme for the sides.
35. The well settled rule of interpretation of Tax laws that in case the two views are possible, the one favourable to the assessee should be adopted, clearly leads this Court to the aforesaid conclusion. The stand of the Revenue on the contrary therefore is not in consonance with the over all objective and clear provisions of the ‘‘KSS 2017’, promulgated with the avowed purpose of quick recovery of arrears of tax, interest and penalty and putting a quicker end to the litigation for both the parties.
51. Thus on the aforesaid legal analysis, this Court is of the clear opinion that the rejection of the applications filed by the petitioners- assessees under the Scheme ‘KSS 2017’, after adjustment of the amounts deposited by them after the assessment orders were passed, first under the head ‘interest’ and thereafter computing the arrears of tax, interest and penalty is unsustainable in law and illegal and the impugned orders therefore deserve to be quashed and set aside and the writ petitions deserves to be allowed.
52. The Writ petitions are accordingly allowed and quashing and setting aside the impugned orders passed by the Respondents- Authorities of the Department, the matters are remanded back to the concerned authorities for re-computing the arrears of tax, interest and penalty, in the manner indicated above in this judgment and then pass appropriate orders and subject to payments already made by the petitioners-assessee or further payments to be made by them in accordance with the provisions of the Scheme as interpreted by this Court above, the waiver of the interest and penalty to the extent of 90% shall be granted to the petitioners-assessees under the said Scheme. The said exercise be completed within a period of three months from today.”
2. This Writ Petition is also disposed of in the same terms. No order as to costs.
Sd/- JUDGE Srl.