2021 (9) TMI 1500 - HC - VAT and Sales Tax

Court affirms Tribunal decision, dismissing Revenue's appeal on interest levy under tax law

The Court dismissed the Revenue's appeal and affirmed the Tribunal's decision to set aside the levy of interest under Section 7[2] of the Karnataka Tax on ... Waiver of interest under Section 7[2] of the KTEG Act - failure to pay tax along with its returns within the time prescribed under Section 7 of the Act on the value of cutting tools caused entry by it during the relevant years in question - HELD THAT:- The provisions of Sections 7[1], to 7[4] of the KTEG Act, make it clear that it was mandatory on the part of the registered dealer to get himself registered under the KTEG Act and send every month statement/returns along with tax payable by him i.e., in advance within 20 days after close of the preceding month to which such tax relates. There is default on the part of the registered dealer in not remitting the tax within 20 days after the close of the preceding month to which such tax relates. Sub-section [2] of Section 7 of the KTEG Act would attract for making the registered dealer liable to pay interest on the short payment of tax. These provisions are identical to Section 12-B[2] of the KST Act. The Division Bench of this Court in Shree Renuka Sugars Limited, Belagavi [2018 (2) TMI 450 - KARNATAKA HIGH COURT], has considered the scope and effect of these provisions in the light of the judgment of the Hon'ble Apex Court in the case of J.K. Synthetics Ltd. Vs. Commercial taxes Officer [1994 (5) TMI 233 - SUPREME COURT] and another Division Bench ruling of this Court in the case of State of Karnataka Vs. Mandovi Motors (Private) Limited, Mangalore, [2015 (11) TMI 1076 - KARNATAKA HIGH COURT] and has arrived at a conclusion that in the absence of provisional assessment made under Section 12-B[3] of the KST Act [therein] to determine the tax liability rejecting the monthly return incomplete or incorrect levying interest on the short payment of tax, such short payment of tax determined by the Assessing Authority while concluding the regular assessment would not attract the levy of interest. It is held that an harmonious reading of Sub-sections (1), (2), (3), (3A) and (4) of Section 12-B makes it clear that the phrase 'paid' and 'payable' employed in sub-Section (2) shall be the determination of advance tax made subsequent to final assessment by the Assessing Authority. It is obvious that the assessee pays the tax whichever is liable according to him on the information returns filed by him, it is highly unrealistic to expect him to pay the tax on the basis of final assessment to be done by the Assessing Authority at a future date or in other words, the assessee cannot predict the liability accruing on the basis of the final assessment proceedings or the assessee cannot affirm such eventualities which according to him was unexpected/uncalled unless provisional assessment is made. If any tax is made finally on final assessment made by the Assessing Authority, penal provisions under Section 7[3] and 8[2] of the KTEG Act ought to have been invoked, but no power under Section 7[2] of the KTEG Act would have been exercised by the Assessing Authority - reserving liberty to the Revenue to examine the levy of interest and penalty as per the provisions of Section 8[2] and 7[3] of the KTEG Act respectively, has set aside the levy of interest under Section 7[2] of the KTEG Act which cannot be faulted with. The question of law answered in favour of the assessee and against the Revenue - petition allowed. Issues:1. Interpretation of Sections 7[1] and 7[2] of the Karnataka Tax on Entry of Goods Act, 1979.2. Whether the Tribunal was correct in setting aside the levy of interest under Section 7[2] of the Act despite the delay in tax payment by the assessee.Analysis:1. The revision petition was filed by the Revenue challenging the judgment passed by the Tribunal regarding the assessment years 2005-06 and 2006-07 under the Karnataka Tax on Entry of Goods Act, 1979. The respondent-assessee, a registered dealer, disputed the levy of entry tax on cutting tools like drill-bits, reamers, etc. The Assessing Authority imposed tax, penalty, and interest under Sections 6[2] and 7[2] of the Act. The First Appellate Authority upheld the levy, leading to the assessee's appeal to the Tribunal.2. The Tribunal, after considering the evidence, ruled in favor of the assessee on the levy of interest under Section 7[2] of the Act. The Tribunal set aside the interest, reserving the right for the Assessing Authority to examine interest and penalty under Sections 8[2] and 7[3] respectively. The Revenue appealed this decision, arguing that the delay in tax payment by the assessee warranted interest under Section 7[2].3. The Revenue contended that the assessee's failure to pay tax within the prescribed period violated Section 7[1] of the Act, justifying the imposition of interest under Section 7[2]. The Revenue emphasized that interest is meant to compensate for delayed tax payments and is automatic in such cases. The Revenue criticized the Tribunal's failure to uphold the interest levy, which was affirmed by the Commissioner of Income Tax.4. The assessee, relying on a previous judgment, argued that interest under Section 7[2] was unjustifiable without provisional assessment determining tax liability. The Division Bench's ruling highlighted the need for provisional assessment before levying interest on short tax payments determined during final assessment. The assessee maintained that the Tribunal's decision aligning with statutory provisions did not warrant interference.5. The Court analyzed Sections 7[1] and 7[2] of the Act, emphasizing the mandatory nature of tax payment by registered dealers within the specified period. Citing precedents, the Court concluded that interest under Section 7[2] is inapplicable when tax liability is determined after final assessment without provisional assessment. The Court upheld the Tribunal's decision, dismissing the Civil Revision Petition in favor of the assessee.In conclusion, the Court's detailed analysis of Sections 7[1] and 7[2] of the KTEG Act led to the dismissal of the Revenue's appeal, affirming the Tribunal's decision to set aside the levy of interest under Section 7[2].