1991 (10) TMI 282 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of compounding fee under section 31 of the Karnataka Sales Tax Act.
2. Estoppel in challenging compounding fee after agreement.

Analysis:

Issue 1: Interpretation of compounding fee under section 31 of the Karnataka Sales Tax Act

The case involved a dispute regarding the compounding fee levied on the respondent under the Karnataka Sales Tax Act. The respondent, engaged in the business of purchasing and selling silk fabrics, was inspected by the Assistant Commercial Tax Officer, who alleged non-maintenance of proper accounts leading to a tax liability. The officer issued a notice under section 29(2)(d) of the Act, proposing to compound the offence departmentally for a sum of Rs. 2,000. The respondent challenged this levy through a writ petition, arguing that the maximum compounding fee applicable was Rs. 1,000 under section 31(b) of the Act. The High Court agreed with the respondent, emphasizing that the specific section invoked, i.e., 29(2)(d), fell under the purview of section 31(b), limiting the compounding fee to Rs. 1,000. The Court clarified that for certain offences, the compounding fee could exceed Rs. 1,000 based on the tax evaded, but in this case, the prescribed limit was applicable, leading to the conclusion that the compounding fee should be Rs. 1,000, not Rs. 2,000.

Issue 2: Estoppel in challenging compounding fee after agreement

The appellant contended that the respondent, having voluntarily agreed to compound the offence by paying the amount demanded, was estopped from challenging the compounding fee through a writ petition. However, the Court rejected this argument, stating that if the amount demanded exceeded the maximum prescribed by law due to misconstruction or other reasons, the respondent retained the right to challenge its legality. In this case, as the compounding fee collected was double the maximum amount allowed by the Act, i.e., Rs. 1,000, the respondent had the right to contest the excess amount collected. The Court held that the respondent's acceptance of the compounding fee beyond the statutory limit did not preclude them from challenging its legality, especially when the authority demanded an amount exceeding the prescribed maximum. Consequently, the Court dismissed the writ appeal, affirming the respondent's right to challenge the excessive compounding fee collected.

In conclusion, the High Court upheld the respondent's contention regarding the interpretation of the compounding fee under the Karnataka Sales Tax Act and rejected the appellant's argument of estoppel in challenging the fee after agreement.