Forfeited tax collections cannot be deducted again from exemption benefits under sales tax law

Tax collected by an assessee during an exemption period was lawfully forfeited under section 46A(1) of the Kerala General Sales Tax Act because the collection occurred despite the exemption regime and the relevant turnover was not treated as taxable turnover. The forfeited amount, however, could not be set off against the exemption already granted, since that would reduce the exemption benefit and deprive the assessee of the full statutory relief. The proper course was to preserve the exemption in full and modify the assessment by treating the relevant supplies as taxable turnover, with consequential tax and interest adjustment, if any.

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Issues: (i) Whether tax collected by the assessee during the exemption period was liable to forfeiture under section 46A(1) of the Kerala General Sales Tax Act, 1963. (ii) Whether the forfeited amount could be adjusted against the exemption already granted so as to reduce the benefit available to the assessee.

Issue (i): Whether tax collected by the assessee during the exemption period was liable to forfeiture under section 46A(1) of the Kerala General Sales Tax Act, 1963.

Analysis: The collected tax related to supplies made after the exemption claim had been processed and while the assessee had enjoyed the exemption regime. The assessee had collected tax on the transactions notwithstanding the exemption and had not treated the relevant turnover as taxable turnover. On these facts, the statutory condition for forfeiture was attracted.

Conclusion: The collected tax was rightly forfeited under section 46A(1), and this issue is decided against the assessee.

Issue (ii): Whether the forfeited amount could be adjusted against the exemption already granted so as to reduce the benefit available to the assessee.

Analysis: Adjusting the forfeited amount again against the exemption would deprive the assessee of the full benefit of the exemption for no fault attributable to it. The proper course was to preserve the exemption entitlement in full and to modify the assessments by treating the relevant supplies as taxable turnover, with consequential adjustment of tax liability and interest, if any.

Conclusion: The forfeited amount could not be set off against the exemption, and this issue is decided in favour of the assessee.

Final Conclusion: The forfeiture was sustained, but the assessee was held entitled to the full exemption benefit without reduction by the forfeited amount, and the assessments were directed to be modified accordingly.

Ratio Decidendi: Where collected tax is lawfully forfeited under the sales tax statute, the forfeited sum cannot again be deducted from the exemption benefit if that would nullify the exemption for the assessee.

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