1992 (11) TMI 263 - HC - VAT and Sales Tax

Supreme Court allows tax adjustment without permission, orders refund, interest payment.

Mangalore Chemicals & Fertilisers Ltd. Versus Deputy Commissioner of Commercial Taxes, Mangalore Division, Mangalore

The Supreme Court held that the petitioner was entitled to adjust taxes payable against refundable amounts without prior permission, quashing the demand ... - Issues Involved:1. Legitimacy of tax adjustment without prior permission.2. Entitlement to restitution of the sum paid.3. Liability of the respondents to pay interest on the refunded amount.Issue-wise Detailed Analysis:1. Legitimacy of Tax Adjustment Without Prior Permission:The State Government issued a notification in June 1969, granting concessions to new industries, including a refund of sales tax on raw materials for five years. In 1975, another order permitted the adjustment of refundable tax towards other taxes payable under the Karnataka Sales Tax Act, 1957, upon obtaining permission. The petitioner obtained the new unit certificate and applied for permission to adjust the refundable tax. Despite recommendations for granting permission, the authorities did not attend to subsequent applications. The petitioner faced tax demands for various periods, which were challenged through writ petitions. The Supreme Court ultimately held that the petitioner was entitled to adjust the taxes payable against the refundable amounts, negating the State's contention that prior permission was mandatory. The Supreme Court observed that withholding permission without valid reasons was unjustifiable and quashed the demand notices, directing the authorities to accord permission for adjustments.2. Entitlement to Restitution of the Sum Paid:Following the Supreme Court's decision, it was undisputed that the impugned demand was liable to be set aside, entitling the petitioner to restitution of the Rs. 45 lakhs paid under the High Court's interim order. The petitioner filed an application for the refund and sought interest on the refunded amount. The State Government repaid the Rs. 45 lakhs after a court direction but left the question of interest open for final hearing.3. Liability of the Respondents to Pay Interest on the Refunded Amount:The core issue was whether the respondents were liable to pay interest on the Rs. 45 lakhs and at what rate. The petitioner argued that the payment was effectively an illegal levy collected under an interim court order, warranting equitable compensation through interest. The Government contended that no interest condition was imposed in the interim order and that the collection was authorized until the Supreme Court's decision rendered it illegal. The court noted that the statutory authorities acted in good faith but ultimately failed to grant the legislative exemption, resulting in unauthorized tax demands.The court considered precedents where interest was awarded on unauthorized collections, emphasizing that interest serves as compensation for the deprivation of funds. The court held that writ jurisdiction is inherently equitable, allowing for interest awards in appropriate cases. Given that the petitioner was deprived of the beneficial use of its funds while the State benefited from the interim order, justice and equity required compensation through interest.Conclusion:The court directed the respondents to pay interest at the rate of 10% per annum from the respective dates of payment until the refund date, thereby allowing the writ petition and making the rule absolute. No costs were awarded.