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1998 (9) TMI 613 - HC - VAT and Sales Tax
Issues: Interpretation of bank overdraft or credit facility in relation to tax arrears recovery under section 14 of the Karnataka Sales Tax Act, 1957.
Analysis: 1. The petitioner challenged the Assistant Commissioner of Commercial Taxes' letter considering overdraft or credit facility as the defaulter/customer's money. The High Court found this interpretation contrary to law and bank practice. The bank's obligation to remit defaulter's amount under tax department notice does not extend to overdraft or credit facility funds. The Commissioner's interpretation clarified that the bank binds itself to pay the agreed sum under the overdraft arrangement, making it the bank's debt to the dealer. 2. Citing the Jay Engineering Works Ltd. v. Syndicate Bank Ltd. case, the Court emphasized that section 226(3) does not create new rights but enables tax recovery. Where a bank has a secured interest, money due to the bank cannot be claimed by the tax department. The Madras High Court's ruling in K.M. Adam v. Income-tax Officer-II further supports that banks do not hold customer money in overdraft situations, and section 46(5-A) does not freeze credits for immediate departmental payment. 3. Under section 14 of the Karnataka Sales Tax Act, 1957, any person holding money for a dealer is liable to pay to the assessing authority. However, a credit facility like overdraft does not authorize the department to recover loan amounts. The bank's granting of overdraft does not imply ownership of the funds by the defaulter. The Court clarified that the bank's facility to the customer does not equate to the customer's ownership of the amount, leading to the quashing of the challenged annexures D and E. 4. In conclusion, the High Court allowed the petition, emphasizing that the bank's facility to the customer does not constitute the customer's owned or due amount. The interpretation suggesting otherwise was deemed incorrect and not in accordance with the law, leading to the quashing of the challenged annexures.
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