2008 (6) TMI 555 - HC - VAT and Sales Tax

Revenue recovery proceedings - sales tax dues payable - Held that - In so far as the validity of annexure C forfeiture order passed by the Tahsildar is concerned, examination of statutory provisions does not reveal any enabling power in favour of the Tahsildar to order forfeiture. An order of forfeiture is a very serious order which is in the nature of penalty and until and unless it is an express provision, there is no question of reading the power of forfeiture in favour of any authority. In fact, under the KST Act what is enabled in favour of the officials of the commercial taxes department is for recovering the arrears of tax and for such recovery, amount as notified under the KLR Act as though it is arrears of land revenue can be resorted to. A recovery is different from forfeiting the properties. Even the KST Act does not envisage any forfeiture of any of the property belonging to an assessee in default. While that in itself is sufficient to invalidate the action under annexure C even under the KLR Act, there is no power of forfeiture and particularly on a reading of the statutory provisions referred to and relied upon by learned Additional Government Advocate. Writ petition allowed in part. Forfeiture order bearing No. ST. TAX. CR. 23/05-06 dated June 23, 2006 passed by the Tahsildar is quashed by issue of a writ of certiorari, but in respect of all other aspects, the challenge fails. It is also made clear that it is open to the recovering authority to take recourse to recovery proceedings even against the property under annexure C in the manner permitted under the law and if there are still any arrears by the petitioner to recover in such manner.

Summary

Issues Involved:
1. Legality of the tax liability and exemption withdrawal.
2. Validity of the forfeiture order by the Tahsildar.
3. Legality of the proclamation under the Revenue Recoveries Act (RR Act).

Detailed Analysis:

1. Legality of the Tax Liability and Exemption Withdrawal:
The petitioner, a registered dealer under the Karnataka Sales Tax Act, 1957 (KST Act), challenged the revenue recovery proceedings for sales tax dues of Rs. 8,05,284. The petitioner claimed exemption based on a Government notification dated June 21, 1991, under section 8A of the KST Act, which provided 100% tax exemption for three to six years depending on the industry's location. However, a subsequent notification dated August 28, 1993, omitted the entry at Sl. No. 11, effectively withdrawing the exemption.

The petitioner argued that the State Government could not withdraw an exemption granted indefinitely, as it amounted to reneging on a promise, violating promissory estoppel principles. The court, however, held that the Government has the power to withdraw, modify, or cancel exemptions under section 8A of the KST Act. The court clarified that the exemption was not for an indefinite period but could be varied at any time. Therefore, the subsequent notification was valid, and the principles of promissory estoppel were not applicable.

2. Validity of the Forfeiture Order by the Tahsildar:
The petitioner contended that the Tahsildar had no power to order forfeiture under the KST Act or the Karnataka Land Revenue Act, 1964 (KLR Act). The court agreed, noting that forfeiture is a severe penalty and requires express statutory provision. Neither the KST Act nor the KLR Act provided the Tahsildar with the power to order forfeiture. The court quashed the forfeiture order dated June 23, 2006, as it was beyond the Tahsildar's authority.

3. Legality of the Proclamation under the Revenue Recoveries Act (RR Act):
The petitioner challenged the proclamation issued under the RR Act, arguing that the Act was not applicable and that the proclamation was defective for not specifying the properties. The court found that the proclamation was a restraint order preventing the petitioner from alienating properties, which is permissible under the recovery procedures of the KST Act. The court held that simultaneous recovery proceedings under the KST Act, KLR Act, and RR Act were valid, citing the judgment in Ali Agro Extract Pvt. Ltd. v. Assistant Commissioner of Commercial Taxes. Therefore, the proclamation was deemed legal.

Conclusion:
The court allowed the writ petition in part, quashing the forfeiture order by the Tahsildar but upheld the tax liability and the legality of the proclamation under the RR Act. The court clarified that recovery proceedings could continue against the petitioner's property as permitted by law.