2006 (3) TMI 705 - HC - VAT and Sales Tax

Summary

Issues:
Challenging interest demand under section 23(3) of Kerala General Sales Tax Act, 1963 for the years 1995-96 and 1996-97 on tax payable on purchase turnover of fuel and raw material. Interpretation of sales tax exemption for industries based on previous court decisions. Applicability of interest and penalty for non-payment of tax after a Supreme Court decision.

Analysis:
The petitioner contested the interest demand by the assessing authority under section 23(3) of the Kerala General Sales Tax Act, 1963 for the years 1995-96 and 1996-97 on the tax payable on the purchase turnover of fuel, raw material, etc., used for manufacturing products. The petitioner claimed exemption based on a previous court decision in Vattukalam Chemical Industries v. State of Kerala, which was later reversed by the Supreme Court in State of Kerala v. Vattukalam Chemical Industries. The Supreme Court held that industries granted sales tax exemption are not exempt from tax on purchase turnover of goods under section 5A of the Act. The petitioner argued that they did not declare any taxable turnover under section 5A in the returns filed, so tax on purchase turnover was not payable at that time.

The court noted that interest is payable only for default in payment of tax under the return or based on a notice of demand served after assessment. Since the assessing officer did not file a counter, the court directed the officer to verify the returns, assessment, and tax payments made by the petitioner. If it is found that the petitioner has not paid tax on admitted taxable turnover under section 5A or delayed payment after a demand notice, then interest can be demanded for that period of default. The court emphasized that interest should be demanded only after giving notice, hearing objections, and passing orders justifying the demand.

Regarding penalties, the court stated that if the petitioner did not declare taxable turnover in respect of purchase turnover after the Supreme Court decision, penalty under section 45A could be considered. However, the penalty should be limited to the interest liability to compensate the State for the delay in payment of tax post the Supreme Court decision. The court dismissed the order on the petition, emphasizing the need for proper verification, notice, and justification before demanding interest or considering penalties.