State of Karnataka vs GMR Energy Limited

N. Kumar, J.�The Revenue has preferred this revision petition challenging the order dated August 14, 2013 passed by the Karnataka Appellate Tribunal, Bangalore (hereinafter referred to as "the Tribunal", for short), wherein the Tribunal has held that the isolated transaction of sale of naphtha is not in the course of trade or business of the assessee. However, tax collected and remitted to the Government has to be forfeited under section 47(2)(b) of the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as "the Act", for short). The facts are not in dispute. The assessee was operating a barge-mounted generator set in Tannirbhavi in the backwaters of Arabian Sea in Mangalore for power generation. Power generated from the barge-mounted generator set was being supplied to the Government of Karnataka under an agreement, up to June 7, 2008, which was not renewed subsequently. The generator set was purchased from M/s. Bharat Petroleum Corporation Limited (for brevity "M/s. BPCL") under fuel supply agreement. On June 7, 2008 when the power generation was stopped by the assessee, there was a stock of unutilised naphtha, which is a controlled commodity under the Naphtha Control Order, 2000 and it required express permission of the Deputy Commissioner and District Magistrate, Dakshina Kannada to sell the naphtha to actual-user buyer. The assessee obtained permission from the aforesaid authorities and sold the same to M/s. BPCL, who found a buyer M/s. Haldia Petrol Chemicals, Haldia to purchase the naphtha and six invoices were raised. The assessee filed the monthly return for November, 2010 in form VAT 100 declaring nil sales and nil tax liability. On December 30, 2010, M/s. BPCL made part payment of Rs. 7 crores to the assessee. The assessee discharged the liability to tax without waiting for the full payment of sale price and tax from M/s. BPCL. On December 31, 2010, the assessee filed revised return in form VAT 100 declared sales of Rs. 49,30,55,504 and paid the full amount of tax of Rs. 6,65,62,493. For the period of delay of 11 days involved, the assessee also paid interest at the rate of 1.5 per cent per month.

The assessing authority issued notice under section 72(2) of the Act proposing to levy penalty of Rs. 66,56,249 equivalent to 10 per cent of the tax paid. Reply was filed by the assessee. Overruling the said objections, the penalty was imposed. The assessee preferred an appeal against the said order before the Joint Commissioner of Commercial Taxes (Appeals)-1 (hereinafter referred to as "the first Appellate Authority", for short) who confirmed the said order. Aggrieved by the said order, a second appeal was preferred to the Tribunal. The Tribunal was called upon to go into the question whether penalty imposed was valid or not? On the contrary, the Tribunal went into the question whether there was any liability to pay tax at all by the assessee and it came to the conclusion that, as the assessee was not carrying on the business of sale of naphtha and what was sold is solitary transaction and it does not amount to "sale" as defined under the Act. Therefore, it held that there was no tax liability on the assessee. As the assessee collected and remitted the amount to the Government, the Tribunal held that the assessee is not entitled to get back the said amount and it would be treated as payment under section 47(2)(b) of the Act. Aggrieved by the said order, the Revenue preferred this revision petition.

We have heard the learned counsel for the parties.

Though the appellate authorities have jurisdiction, and in a particular case, it is the duty of the authority to go into a question whether any tax is liable to be levied on the assessee or whether such amount is payment or not, such a contention cannot be gone into by the lower authorities when the same is not the subject-matter of the appeal. In the instant case, the subject-matter of the appeal was whether the authorities were justified in levying penalty. In order to decide whether the penalty was leviable or not, the Tribunal cannot go into a question of collecting and levying of tax is valid or not? In the instant case, the assessee sold naphtha and collected sales tax from the purchaser. Though in the earlier returns the assessee had declared nil sales and nil tax, on receipt of a portion of amount, he filed a revised return within 11 days from the date of filing of original returns and paid the entire tax with interest for 11 days. Therefore, the assessee had never disputed the tax liability. Moreover he had collected tax from the purchaser and paid it to the Government. His grievance was, he is not liable to pay any penalty because there was no intention to avoid payment of tax. Therefore, the question before the Tribunal was in the facts and circumstances of the case, whether levy of penalty was valid or not?

We are satisfied from the materials on record that levy of penalty was not justifiable because the assessee had filed a revised return, paid tax and interest within a span of 11 days. Hence, imposition of penalty is not being automatic unless the intention to evade tax is made out or any mala fide act is made out, the penalty cannot be imposed. Therefore, the order of imposing penalty is unsustainable. Accordingly, it is hereby set aside. At the same time, forfeiture of amount collected and paid to the Government under section 47 is one which is beyond jurisdiction of the Tribunal. The said amount represents tax and interest for delayed payment as the said amount was collected from the purchaser, the assessee had no right to keep it and he had rightly remitted it to the Government. That amount is legitimately due to the Government by way of tax. Hence, the question of forfeiting the said amount does not arise. Therefore, the order passed forfeiting the said amount under section 47 is illegal and is hereby set aside. In that view of the matter, the revision is partly allowed. Ordered accordingly.