Sunlac Paints Ltd. vs Additional Commissioner of Commercial Taxes and Another

N. Kumar, J.—This appeal is admitted to consider the following substantial question of law: Whether the revisional authority was justified in interfering with the order of the appellate authority which had directed adjustment of tax paid u/s 4(1) of the Karnataka Special Tax on Entry of Certain Goods Act, 2004, when the assessee was not claiming any benefit in pursuance of the judgment of this court which has struck down the charging section 3 of the said Act?

By consent of parties, the appeal is taken up for final disposal and disposed of by this order. 2. The appellant is a limited company dealing in paints, thinner, etc. The respondent concluded the original assessment order under the Karnataka Sales Tax Act, 1957 ("the KST Act", for short), on November 14, 2006 by accepting the declared total and taxable turnovers in terms of the notification dated March 31, 2006. Thereafter, the appellant by letter dated July 3, 2007, requested the respondent to adjust the special entry tax paid on the purchases of paints, thinner, etc., towards the KST payable for the assessment year under appeal. With reference to the said letter, the respondent issued an endorsement rejecting the request of the appellant for adjustment. Aggrieved by the same, the appellant preferred an appeal.

The appellate authority held that it is an undisputed fact that the appellant has paid the special entry tax on the purchases of paints, thinners, etc., under the provisions of section 3(1) of the Karnataka Special Tax on Entry of Certain Goods Act, 2004 (for short, "the Special Entry Tax Act"). Section 4(1) of the aforesaid Act provides for reduction in tax liability, if the assessee has paid higher tax than what is prescribed under the KST Act. As admittedly the assessee paid higher tax, it sought for adjustment. According to the appellate authority the rejection of the said request without giving cogent reasons for not adjusting the balance amount standing in the credit of the assessee under the Act, could not be sustained in law as admittedly there was balance of amount standing in the credit of the assessee. There is no bar either under the Special Entry Tax Act or under the KST Act restraining the respondent from adjusting the amounts outstanding in the credit of the dealer towards the arrears of tax due under the KST Act, 1957 and accordingly the endorsement issued rejecting the said request was set aside.

The Additional Commissioner of Commercial Taxes in purported exercise of his power u/s 22A(1) of the KST Act, 1957 which confers suo motu power of revision, interfered with the said order and set aside the same on the ground that against the order passed by the learned single judge of this court setting aside the charging section, an appeal is filed and the appellate court has granted stay of refund pending the appeal and also has issued certain directions regarding how assessment is to be done. Therefore, relying on the aforesaid interim order passed in appeal, he held that there is no question of adjustment except reduction of tax against KST liability and refund of excess special entry tax which is stayed by the honourable High Court in writ appeal. Therefore, the order passed by the appellate authority allowing adjustment of special entry tax assessed towards KST arrears was set aside on the ground that it is bad in law and prejudicial to the interest of Government revenue.

Aggrieved by the said order, the present appeal is filed.

We have heard the learned counsel for the parties.

In the first place, it is apparent from the proceedings that the assessee''s claim was not based on the order passed by the learned single judge who has struck down the charging section, namely, section 3 of the Act. The entire claim was based u/s 4(1), which provides for adjustment of tax. If the tax paid is higher than the tax prescribed under the KST Act, the aforesaid section provides for refund of the excess amount. The case of the assessee is that he has paid tax under the Act which is in excess of what is stipulated under the KST Act and therefore he is entitled for refund. Though the said case was property appreciated by the assessing officer, he has declined to give the benefit of section 4(1) of the Act and by the impugned order, without giving reasons, has rejected the request for adjustment. It is in that context, the appellate authority on the admitted facts of this case, held that there is no prohibition under the Act for such adjustment when section 41 specifically provides for adjustment.

The judgment of the learned single judge of this court or the interim order passed in appeal, has no application to the facts of this case. Therefore the appellate authority directed the assessing officer to give the benefit to which the assessee is entitled to u/s 4(1) of the Act. In the assessment order, the figures are quantified. It discloses what is the amount paid under the Act, what is the amount payable under the KST Act and what is the amount excess paid. The excess paid is either to be adjusted towards any tax liability or to be refunded to the assessee. In that view of the matter, the order passed by the appellate authority was legal and valid. The revisional authority committed a serious error in interfering with the said legal order on wrong assumption and therefore the said order requires to be set aside. Hence we pass the following order:

Appeal is allowed.

The order passed by the revisional authority, which is impugned in this appeal, is hereby set aside. The order of the appellate authority is restored.

Parties to bear their own costs.