2004 (8) TMI 659 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutionality of clause (ii) of sub-section (2) of section 18-AA of the Karnataka Sales Tax Act, 1957.
2. Legality of the order passed by the assessing authority and the consequential demand notice.
3. Permissibility of challenging the retrospective amendment at a belated stage.

Issue-wise Detailed Analysis:

1. Constitutionality of clause (ii) of sub-section (2) of section 18-AA of the Karnataka Sales Tax Act, 1957:
The petitioner challenged the constitutional validity of clause (ii) of sub-section (2) of section 18-AA of the Karnataka Sales Tax Act, 1957, arguing that it was violative of Article 14 of the Constitution of India. The petitioner contended that the amendment to section 9 of the CST Act introduced by Central Act No. 10 of 2000 was only prospective and not retrospective, and that retrospective amendments imposing interest on delayed payments were unreasonable and unconstitutional.

The court examined the provisions of the Karnataka Sales Tax Act and concluded that interest is payable on delayed remittance of amounts unauthorisedly collected by way of KST. The court found that the amendment to section 9 of the CST Act introduced by Central Act No. 10 of 2000 was indeed retrospective and aimed at rectifying the absence of a substantive provision for the collection of interest, as highlighted by the Supreme Court in the India Carbon Limited case.

The court referred to various judgments, including the Bakhtawar Trust case, to support the view that retrospective legislation is permissible and can validate prior actions if it removes the cause of invalidity. The court held that the amended Act was constitutionally valid and did not violate Articles 14 and 19(1)(g) of the Constitution of India.

2. Legality of the order passed by the assessing authority and the consequential demand notice:
The petitioner argued that the order passed by the assessing authority and the consequential demand notice were not sustainable in law. The petitioner claimed that the tax rate for the relevant items had been reduced to 1.5% as per a notification and that "C" forms were not required.

The court found that the petitioner had collected sales tax at the rate of 4%, contrary to the permissible limit of 2%, thereby contravening the provisions of section 18(1) of the KST Act read with section 9(2) of the CST Act. The court noted that the petitioner had unjustly enriched itself by retaining the excess tax collected without paying it over to the Government, attracting interest charges under section 18-AA(2)(ii) of the KST Act.

The court held that there was no error or illegality in the order passed by the assessing authority and the demand notice issued. The court emphasized that the retrospective introduction of the provision for collection of interest was reasonable and justified to prevent unjust enrichment by the petitioner.

3. Permissibility of challenging the retrospective amendment at a belated stage:
The court noted that the retrospective amendment to section 18-AA of the KST Act was made in 1992, while the petitioner collected excess tax during the assessment year 1996-97. The court observed that the petitioner was well aware of the retrospective amendment when it collected the excess tax and only challenged the amendment after the issuance of the demand notice.

The court held that the petitioner had not properly explained the delay in questioning the retrospective amendment and had not assigned cogent reasons for condoning the delay. The court referred to the Rup Diamonds case, emphasizing that claims should be pursued promptly and that unexplained, inordinate delays in preferring claims should lead to their rejection.

The court also highlighted that the petitioner had an alternative, efficacious remedy by way of filing an appeal before the appellate authority but chose to approach the court directly. The court held that the petitioner could not seek relief without exhausting the alternative remedy available under the law.

Conclusion:
The court dismissed the writ petition, upholding the constitutionality of clause (ii) of sub-section (2) of section 18-AA of the Karnataka Sales Tax Act, 1957, and the legality of the order passed by the assessing authority and the consequential demand notice. The court also held that the petitioner could not challenge the retrospective amendment at a belated stage without proper explanation for the delay.

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