State of Karnataka vs Mandovi Motors (Private) Limited

N. Kumar, J.—The revenue has preferred these revision petitions against the order of the Karnataka Appellate Tribunal, Bangalore, allowing the assessee''s appeal and holding that in respect of an assessment made u/s 12(3) of the Karnataka Sales Tax Act, 1957 (for short hereinafter referred to as ''the Act'') interest stipulated u/s 12(1-B) of the Act is not attracted. Therefore interpretation of Section 12(1-B) of the Act is called in question in these revision petitions. The assessee is a private limited company engaged in the sale of Motor Cars and registered as a dealer under the provisions of the Karnataka Sales Tax Act, 1957. In relation to the assessment period 1-4-2001 to 31-3-2002, the assessment was concluded u/s 12(3) of the Act on 22-7-2004. As per the assessment order, the assessee was assessed to total tax of Rs. 22,35,27,631/- against which the assessee had paid advance tax as per the monthly returns amounting to Rs. 22,31,66,076/-, thus making short payment of tax of Rs. 3,61,555/-.

For the assessment year 1-4-2002 to 31-3-2003 the total tax due was Rs. 17,70,29,019/-, whereas the assessee had paid advance tax of Rs. 17,68,40,304/-. Thus, the short payment of tax was Rs. 1,88,715/-.

The Assessing Authority, after assessment, issued a demand notice calling upon the assessee to pay difference in tax along with interest at the rate of 2% per month. It is not in dispute the assessee on receipt of the said notice has paid the difference in tax within 30 days, but he challenged the levy of interest of 2% per month on the difference amount. Thereafter, the assessee preferred an appeal to the Joint Commissioner of Commercial Taxes (appeals), which came to be dismissed upholding the levy of interest on the difference amount of tax. Aggrieved by the said order, the assessee preferred a second appeal to the Karnataka Appellate Tribunal. The Appellate Tribunal by the impugned order held, when the assessment order is passed u/s 12(3) of the Act, if any amount of tax is found due, then on such amount found due, no interest is payable u/s 12(1-B) of the Act and therefore, the order passed by the original authority as well as the Appellate Authority insofar as the levy of interest was set aside. Aggrieved by the said orders, the revenue is in appeal.

The learned Government Advocate assailing the impugned order of the Tribunal contends, Section 12(1-B) of the Act applies to an order passed u/s 12(3) of the Act when it is found the amount of tax paid in advance is less than the amount of tax found due by the Assessing Authority while passing an order u/s 12(3) of the Act and therefore, she submits the order of the Tribunal requires to be set aside.

Per contra, the learned Counsel for the assessee submitted, Section 12(1-B) is applicable to a case where when a return is filed u/s 12(1) of the Act and if the amount shown to be due in such return is not paid beyond 30 days after the close of the year, the dealer defaulting payment of tax or making short payment of tax shall, in addition to the tax, pay interest calculated at the rate of 2% per month. It has no application to tax found due by the Assessing Authority while passing the order u/s 12(1-B) of the Act. After the order of assessment is passed u/s 12(1-B) of the Act, if any tax is found due, a demand is issued giving 30 days to make the payment. If the amount is not paid within 30 days, then on that difference amount, interest is payable u/s 13 read with Section 20 of the Karnataka Sales Tax Act. Section 12(1-B) has no application to such default in payment of tax.

In the light of the aforesaid facts and rival contentions, the question of law that arises for our consideration in these two revision petitions is:

Whether Section 12(1-B) is attracted to the assessment order passed u/s 12(3) of the Act?

Chapter V of the Act deals with Returns, Assessment, Payment, Recovery, Composition and Collection of Tax. Section 12-B deals with payment of tax in advance. Every dealer shall file every month a statement containing such particulars as may be prescribed including the taxable turnover during the preceding month and shall pay in advance the full amount of tax payable under the Act within 20 days after the close of the preceding month to which such tax relates on the basis of the turnover particular shown in the statement. The amounts so payable shall for the purpose of Section 13 be deemed to be the amount due under the Act from such dealer. Sub-section (2) of Section 12-B provides if a dealer commits default either in filing the returns or in making the payment of tax as shown in the statement or makes a short payment of tax, then he is liable to pay interest at the rate of 2% per month from the date of such default or short payment to the date of payment of such tax. Sub-section (3) of Section 12-B provides for a best judgment assessment if no monthly return is filed. Sub-section (3-A) of Section 12-B provides for payment of penalty. Therefore, now the law mandates filing of return every month and payment of tax in advance.

Section 12 with which we are concerned reads as under:

(1) Notwithstanding anything contained in Section 12-B, every registered dealer and every dealer who is liable to get himself registered under sub-section (1) or (2) of Section 10, shall submit such return or returns relating to his turnover, in such manner and within such period as may be prescribed".

Therefore, in addition to the monthly returns i.e. Form 3 which he has filed, a dealer is expected to file yearly returns i.e., Form 4 u/s 12(1) of the Act in the prescribed manner. Sub-section (1-A) of Section 12 makes it obligatory on the part of the dealer to pay in advance the full amount of tax payable by him on the basis of such return filed u/s 12(1) as reduced by any tax already paid u/s 12-B. Along with the return he shall furnish satisfactory proof of the payment of such tax. The said provision declares the tax so payable on such annual return shall for the purpose of Section 13 be deemed to be the tax due under this Act from such dealer. If default is committed in the payment of full amount of tax payable in advance for any year as reduced by any amount of tax already paid u/s 12-B, whether or not a return as required under sub-section (1) is filed; or if the amount of tax paid is less than the amount of tax so payable, the dealer defaulting payment of tax or making short payment of tax shall, in addition to the tax, pay interest calculated at the rate of 2% per month as prescribed under sub-section (1-B) of Section 12. In other words, when a dealer files a return, states what is the tax payable, but he fails to make payment of the said tax or makes short payment, then he is liable to pay interest on the tax due under the Act. After the filing of the return, if the Assessing Authority is satisfied that any return submitted under sub-section (1) is correct and complete, he shall assess the dealer on the basis thereof by virtue of the power conferred on him under sub-section (2) of Section 12 of the Act. However, if no return is submitted by the dealer under sub-section (1) before the date prescribed or specified in that behalf, or if the return submitted by him appears to the Assessing Authority to be incorrect or incomplete, the Assessing Authority shall assess the dealer to the best of his judgment, recording the reasons for such assessment. On such assessment if it is found that the dealer is due in any amount of tax, then he shall issue notice to the dealer in Form 6 calling upon the dealer to pay the tax as finally assessed within 21 days from the date of service of notice on such dealer. If the amount is not paid within 21 days from the date of service of notice, then u/s 13 he is liable to pay interest on such difference in the tax finally assessed. That is the scheme under the Act. Therefore, Section 12(1-B) is attracted when there is a default in payment of tax due under the act from the dealer. It has no application to the interest payable in terms of final assessment. Interest is payable on final assessment u/s 13. Interest is due on tax due under the Act u/s 12(1-B).

The Constitution Bench of the Supreme Court in the case of J.K. Synthetics Limited and Birla Cement Works and another Vs. Commercial Taxes Officer, State of Rajasthan and another, in somewhat similar situation has held as under:

"If the amount of tax payable under sub-section (2) of Section 7 of the Rajasthan Sales Tax Act, 1954 is paid on the basis of return, not on the basis of final assessment, there can be no question of payment of interest under clause (a) of Section 11-B. Similarly, if the tax is paid according to the return as required by sub-section (2-A) of Section 7, in other words, if the full amount of tax due "shown" in the return is paid, there can be no question of charging interest under clause (a) of Section 11-B. So far as clause (b) is concerned it is a post assessment situation. Where tax is found due on final assessment and the dealer is required to make good the difference, a notice of demand will issue. If the dealer fails to pay the tax within the time specified in the notice, and if no time is specified within 30 days from the receipt of notice, he is required to pay interest at the rates prescribed by the sub-section. But if he pays the difference of tax within the prescribed time, there is no question of charging interest. If such an interpretation is not placed and if the Revenue''s plea is accepted serious anomalies would surface".

Therefore, in this case the order passed u/s 12(1-B) of the Act levying interest at the rate of 2% per month on the difference in the amount is unsustainable. The Tribunal has rightly set aside the levy of interest. It is in accordance with law. No case for interference is made out. Revision petitions dismissed.