2009 (8) TMI 1116 - HC - VAT and Sales Tax

Kerala High Court Upholds Tax Forfeiture, Protects Exemption

Alliance Grain Products Pvt. Ltd. Versus State of Kerala and Another

The High Court of Kerala upheld the forfeiture of tax collected by an SSI unit engaged in manufacturing wheat products under section 46A(1) of the Kerala ... - Issues:- Forfeiture of collected tax under section 46A(1) of the Kerala General Sales Tax Act, 1963 during the period of exemption.- Impact of forfeiture on the benefit of tax exemption granted to the appellant.- Permissibility of forfeiture and set-off against certified exemption amount under the notification granting exemption.Analysis:The judgment of the High Court of Kerala pertained to a writ appeal challenging the orders issued by the assessing officer forfeiting tax collected by an SSI unit engaged in the manufacture of wheat products under section 46A(1) of the Kerala General Sales Tax Act, 1963. The appellant had collected tax on supplies to the Government for distribution under the public distribution system during the period of exemption granted from 1991 to 1996. The Civil Supplies Department directed the appellant to deposit the collected tax, which was done. However, the assessing officer issued orders forfeiting the collected tax, which were upheld by the learned single judge.The main contention raised by the appellant was that the forfeiture adversely affected them as the forfeited tax was set off against the exemption amount, resulting in the loss of the benefit of tax exemption. The Government Pleader argued that both forfeiture and set-off were permissible under the notification granting exemption. The Court observed that the tax recovery occurred before the issuance of the exemption order in 1994, and the petitioner had not disclosed the turnover as taxable or paid tax voluntarily. The Department requested the tax remittance due to information about tax collection during the exempted period.The Court found the forfeiture justified as the appellant claimed exemption on the turnover and collected tax after exemption. However, it noted that setting off the forfeited amount against the total exemption would lead to the loss of benefits for the appellant without fault on their part. Therefore, the Court directed that the forfeited amount should not be set off from the total exemption granted, ensuring the full exemption amount for the specified period to be made available to the appellant. The writ appeal was disposed of by upholding the forfeiture but with a direction to modify assessments for the relevant years and grant relief accordingly. The Court emphasized that the entire amount paid should be adjusted towards tax liability and any applicable interest under the Kerala General Sales Tax Act.