2009 (12) TMI 864 - HC - VAT and Sales Tax

Whether short payment of tax by the dealers along with monthly returns either on account of non-inclusion of turnover or failure to return turnover at the full rate of tax attracts interest under section 23(3A) of the Act? Held that - We overrule the judgment in P.K. Damodaran s case 2003 (2) TMI 452 - KERALA HIGH COURT above referred to and allow the revision cases by reversing the orders of the Tribunal and by restoring the interest levied under section 23(3A). However counsel appearing for the respondents submitted that but for the favourable orders issued by the Tribunal though now found to be wrong by this court the respondents should have settled the liability towards interest under the Amnesty Scheme that was prevalent up to March 31 2009. We find force in this contention because had the Tribunal dismissed the appeals probably the respondents would have settled the liability under the Amnesty Scheme. We therefore direct the assessing officer to grant amnesty benefit to the respondents reducing the interest in terms of the scheme and allow settlement of liability by demanding further interest at one per cent per month for the amnesty amount payable from the last date for payment under the amnesty scheme till date of payment.

Summary

Issues:
Interpretation of interest payable under section 23(3A) of the Kerala General Sales Tax Act regarding short payment of tax by dealers.

Analysis:
The High Court of Kerala, through a Division Bench, referred a case for decision by a Full Bench to determine the scope of interest payable under section 23(3A) of the Act. The main issue revolved around whether short payment of tax by dealers, due to non-inclusion of turnover or failure to return turnover at the full tax rate, attracts interest under the said section. The court considered cases where a dealer paid tax at a lower rate than required or failed to include turnover in the return, leading to the levy of interest under section 23(3A). The Tribunal had previously cancelled the interest levy based on a Division Bench decision, which interpreted interest payment conditions differently.

The court analyzed the pre-amendment and post-amendment provisions of section 23(3A) to determine the compensatory nature of the interest payable. It was established that interest accrues from the date the tax would have been due if the turnover was correctly included in the return. The liability arises from the dealer's failure to include any turnover in the filed return. The court rejected the argument that turnover alone does not determine tax liability, emphasizing the importance of correctly declaring taxable turnover to avoid non-payment or short-payment of tax.

The court held that the amendment to the provision was clarificatory, emphasizing that interest is payable on taxable turnover omitted in the return. Interest under section 23(3A) is attracted by the failure to include taxable turnover, incorrect exemption claims, or misclassification of goods at lower tax rates. Even if an assessment is later revised to increase tax demand, interest is payable on the differential tax amount. The court overruled a previous judgment that interpreted the section differently, stating that the purpose of the section is to compensate for belated tax payment.

Furthermore, the court directed the assessing officer to grant amnesty benefit to the respondents, allowing them to settle the liability under the Amnesty Scheme. The respondents were instructed to apply for settlement within a specified timeline, with further interest applicable for the amnesty amount. The court clarified that the amnesty benefit would only apply to the respondents due to the specific circumstances of the case.