Garuda Autocraft Private Limited vs The Deputy Commissioner of Commercial Taxes

D.V. Shylendra Kumar, J.—These sales tax revision petitions are by a dealer dealing with purchase of branded motor vehicles from M/s. General Motors Limited and sells it as agent/distributor of these vehicles. Insofar as the present revision petitions are concerned, petitioner who is a registered dealer under the provisions of the Karnataka Value Added Tax Act, 2003 (for short ''the Act'') and also under the Central Sales Tax Act, 1956, had filed its return of turnover for the period from April 2005 to March 2007. Under the Act, returns are deemed to be accepted unless they are re-opened by issue of notice. It so happened the returns were examined by issue of notice u/s 39(1) of the Act for some period and u/s 39(2) of the Act for some period. Ultimately, reassessment was concluded and the actual amount of tax liability as per reassessment order for each of these months were determined, for the period 2005-06 as under:

and for the period of 2006-07 as under:

On noticing the difference of tax payable on the turnover which had been omitted to be declared, the Assessing Authority had levied interest u/s 36 of the Act. We are only concerned with this part in these revision petitions and confine to this question. The Assessing Authority levied interest u/s 36 of the Act as under:

The assessee had contended that it is not liable to pay interest for the reason that the difference in the tax liability on return filed and as assessed on reassessment was less than 5% and therefore as per Section 36(1) read with Section 72(2) of the Act, interest could not have been levied and had sought for not to levy any interest before the Assessing Authority. The Assessing Authority rejected this argument holding that u/s 36(2)(c) of the Act, the registered dealer who fails to declare any tax or interest which should have been declared shall be liable to pay interest in respect of tax and additional tax payable as provided u/s 36(1) of the Act and therefore the question of non-levy because of the difference being less than 5% did not arise. The interest as indicated above was levied.

Being aggrieved by this order levying interest u/s 36 of the Act, the assessee had appealed to the Appellate Authority -- Joint Commissioner of Commercial Taxes. In the appeal on behalf of the assessee, learned Counsel for the assessee reiterated the stand that the provisions of Section 36(1) of the Act is subordinate to Section 72(2) of the Act and therefore if the difference of tax payable as per reassessment order u/s 39(1) of the Act is less than 5% of the actual liability, the provisions of Section 36(1) of the Act cannot be invoked etc., and he pointed out that in all these cases, it was actually less than 5%. It was also pointed out that the view taken by the Assessing Authority that it was interest leviable u/s 36(2)(c) of the Act was also not correct; that the liability has arisen only because disallowing certain warranty claims etc., and therefore Section 36(2)(c) of the Act was not applicable.

The Appellate Authority which examined this contention rejected the same. But, no doubt, the difference has arisen under the reassessment, but the reassessment order when once it is passed and justified, other consequences follow and on facts found that the assessee had not declared the true turnover and had not paid taxes that was payable by the assessee on its turnover earlier.

The Appellate Authority also pointed out that u/s 72(2) of the Act, penalty was levied, but only in situation of the difference of tax payable being 5% or more and not otherwise. The Appellate Authority also clarified that the situation was one covering only u/s 36(2)(c) of the Act and not u/s 36(1) of the Act. The Appellate Authority also noticed that there was scope for correction only in situation of Section 39(1) of the Act; that if correction was done within stipulated period of three months, no levy of interest would arise and insofar as Section 72(2) of the Act was concerned, 5% minimum was essential and noticed that situation was not at all one governed u/s 36(1) of the Act, but governed u/s 36(2) of the Act and this was covered by Section 36(2)(c) of the Act which is a situation where section gets attracted there being failure to declare any tax should have been declared as in the case of the assessee. The Appellate Authority also noticed that the turnover neither was brought to tax nor was it declared in the total turnover and they were all brought on record on reassessment. The Appellate Authority opined that there was no error in charging interest u/s 36(2)(c) of the Act and accordingly the Appellate Authority opined that levy of interest was justified.

The assessee further appealed to the Appellate Tribunal. The Appellate Tribunal did not find any occasion to interfere. The Tribunal in fact rejected the argument of learned Counsel for the appellant that Section 36(1) also is subject to provisions of Section 72(2) of the Act, in the sense that it is only when Section 72(2) of the Act is attracted, levy of interest u/s 36(1) of the Act is possible etc. The Tribunal clarified that the provisions of Section 36(1) of the Act being made subject to Section 72(2) of the Act is only to make it clear that levy of interest will not come in the way of levy of penalty u/s 72(2) of the Act and is independent of it. The Tribunal found the situation attracted the provisions of Section 36 of the Act and therefore sustained levy of interest u/s 36 of the Act as per the order dated 8-3-2010 (copy at Annexure-A).

It is aggrieved by these orders sustaining levy of interest, the present revision petitions u/s 65(1) of the Act.

Appearing on behalf of the petitioner-assessee, submission of Sri Thirumalesh, learned Counsel is that the levy of interest in the present case while no doubt is a levy attracting the provisions of Section 36(2)(c) of the Act, but even here, the interest that is to be levied essentially is only u/s 36(1) of the Act; that in all situations where revised return or return filed earlier is not corrected within three months, levy u/s 36(1) of the Act is attracted and the assessee''s case being one such levy of interest u/s 36(1) of the Act is attracted though it may be a situation as indicated in Section 36(2)(c) of the Act.

Submission is that the provisions of Section 36(2) of the Act is situation where a dealer gets out of levy u/s 36(1) of the Act and therefore submits that Section 36(2)(c) of the Act being made subject to Section 36(1) of the Act and Section 36(1) of the Act clearly making it being subject to Section 72(2) of the Act, even in respect of levy of interest in situation attracting levy of interest contemplated u/s 36 of the Act, the interest is again subject to levy u/s 72(2) of the Act and therefore the difference of more than 5% is essentially the requirement to levy interest.

Notice had been issued to the respondent. Smt. S. Sujatha, learned Additional Government Advocate appears on behalf of the respondent.

It is submitted that levy being u/s 36(2)(c) of the Act, the question of Section 72(2) of the Act being attracted does not arise; that it was clear case where there was omission to file the return of actual turnover, but less than the actual turnover had been filed, in the sense, it was a return which had been filed by the assessee not disclosing the entire turnover; that the reassessment was because of this reason and on reassessment, the tax liability as noticed above had been determined and there being difference, levy of interest was attracted u/s 36 of the Act; that the provisions of Section 72(2) of the Act operate independently for levy of interest and has nothing to do with levy of interest u/s 36 of the Act. This aspect has been noticed by all the three authorities though the Assessing Authority had proceeded only u/s 36(1) of the Act, the First Appellate Authority and the Tribunal clarified that situation attracted levy of interest u/s 36(2)(c) of the Act and even assuming for argument sake, levy is basically u/s 36(1) of the Act, the provisions of Section 72(2) of the Act cannot be imported to absolve the levy of interest u/s 36 of the Act.

We find in the present situation there is no dispute that there was an incorrect return of turnover and taxable turnover. The mistake or filing of incorrect turnover was detected and corrected only by reassessment order and not by the assessee having undertaken voluntary correction of the return within three months period.

Section 36 of the Act reads as under:

Interest in case of failure to furnish returns or to pay tax declared on returns or other amounts payable.--(1) Every dealer shall be liable to pay simple interest on any amount of tax which should have been declared on a return, but which has been omitted from it, unless that omission is corrected within three months of the omission subject to sub-section (2) of Section 72, and such interest is payable from the date the tax should have been declared, and the dealer shall declare his liability to pay that interest in such form and manner as may be prescribed.

(2) If a dealer required to furnish a return under this Act.--

(a) fails to pay any amount of tax or additional tax declared on the return; or

(b) furnishes a revised return more than three months after tax became payable, declaring additional tax, but fails to pay any interest declared to be payable under sub-section (1); or

(c) fails to declare any tax or interest which should have been declared; or

(d) fails to make a return,

such dealer shall be liable to pay interest in respect of the tax and additional tax payable as declared by him or the tax payable and interest payable under sub-section (1) for the period for which he has failed to furnish a return.

(3) Where any other amount is payable under this Act is not paid within the period specified in Section 42, interest shall be payable on such amount from such period.

(4) The interest shall also be payable under this section during any period during which recovery of any tax or other amount payable under the Act is stayed by an order of any authority or Court in any appeal or other proceedings disputing such tax or amount.

The caption of the section indicates that it is levy of interest in case where failure to furnish return or to pay tax declared in the return of income, it is a situation where even when the provisions of Section 36 of the Act are attracted, but the argument on behalf of the assessee by Sri Thirumalesh is that the levy of interest is subject to Section 72(2) of the Act.

We have perused the provisions of Section 72 of the Act. Section 72(2) of the Act reading as under:

Penalties relating to returns and assessment.--(1) x x x x

(2) A dealer who for any prescribed tax period furnishes particulars for preparation of a return or furnishes a return which understates his liability to tax or overstates his entitlement to a tax credit by more than five percent of his actual liability to tax, or his actual tax credit, as the case may be shall after being given the opportunity of showing cause in writing against the imposition of a penalty, be liable to a penalty equal to ten percent of the amount of such tax under or overstated.

Which stipulates 5% difference and the liability as disclosed and the liability as determined on reassessment later, levy of penalty after giving opportunity is contemplated at 10% of the amount of tax whether understated or overstated in the return. This is a provision which provides for levy of penalty but that levy of interest u/s 36 of the Act which is not in the nature of penalty, but only interest for the delayed payment of tax, it is at 1 1/4% for some period and at 1.5% for some period at the relevant time u/s 37 of the Act.

While levy of interest per se is not disputed and Section 36 of the Act being attracted though Mr. Thirumalesh contends that Section 36(2)(c) of the Act is also through Section 36(1) of the Act, the argument advanced on behalf of the assessee is confined to the limited aspect of the provisions being made subject to Section 72(2) of the Act and therefore submits that in a situation where no penalty is leviable u/s 72(2) of the Act, no interest is also leviable u/s 36 of the Act.

We have bestowed our attention to this argument. While it is no doubt true that as contended by learned Additional Government Advocate that Section 36(2)(c) of the Act does not mention of Section 72(2) of the Act, but it does make a mention of Section 36(1) of the Act and not Section 72(2) of the Act and by such mentioning cannot be made subject to the provisions of Section 72(2) of the Act.

We are of the opinion that even understanding a situation within Section 36(1) of the Act with reference to Section 72(2) of the Act cannot be understood as one importing the requirement of difference being more than 5% for levy of penalty as an essential condition for levy of interest u/s 36(1) of the Act also, then it is a fortiori so for the purpose of Section 36(2)(c) of the Act. We say so for the reason that the two provisions are independent and in fact levy of interest is not made subject to levy of penalty and therefore it cannot be contended that it is only when penalty is levied, interest u/s 36 can be levied. In our understanding and as submitted by learned Additional Government Advocate, the words ''subject to'' u/s 36(1) of the Act can only be to say that levy of interest is in terms of Section 36 of the Act notwithstanding levy of penalty u/s 72 of the Act.

However, we make it clear that in situation where revised return has been filed within the margin period of three months and the tax also paid, the levy of interest u/s 36(1) of the Act being not attracted is in no way affected because of the situation where levy of penalty u/s 72 of the Act is attracted. It is for this reason, we do not think there is any need to admit these revision petitions on the question as raised in these petitions. These revision petitions are dismissed.