2009 (11) TMI 869 - HC - VAT and Sales Tax

Arrears of tax and interest due for the assessment years 1994-95 to 2000-01 - Held that - We are of the view that the provisions of the Contract Act have no application so far as the Sales Tax Act is concerned because it is a selfcontained code providing for levy and collection of sales tax by the Government from dealers.Therefore, the learned single judge rightly rejected the appellant s claim based on sections 59 and 60 of the Indian Contract Act. What is conveyed by sub-section (2) of section 55C is that the applicability of sub-section (1) of section 55C is not with reference to the period for which arrears are paid, but reference to the date of payment made in discharge of arrears of tax and interest by the dealer. In other words, all payments made after January 1, 2000 towards the discharge of arrears of tax will be subjected to adjustment under section 55C(1) irrespective of the year to which the arrears of tax and interest relate. We, therefore, uphold the order of the learned single judge and dismiss the writ appeal

Summary

Issues:
1. Adjustment of payment towards tax arrears and interest under section 55C of the Kerala General Sales Tax Act, 1963.
2. Applicability of sections 59 and 60 of the Indian Contract Act in the context of tax arrears.
3. Application of section 55C to arrears of tax prior to January 1, 2000.

Analysis:
1. The appeal challenged the adjustment of payment made by the appellant towards tax arrears and interest due for assessment years 1994-95 to 2000-01, with the contention that payments should have been first adjusted towards tax arrears instead of interest as per section 55C of the Act. The court upheld the assessing officer's adjustment, emphasizing that section 55C mandates payments to be first appropriated towards interest accrued on the tax amount, regardless of any contrary request by the dealer. The court rejected the appellant's argument against this adjustment, affirming the application of section 55C in the case.

2. The appellant invoked sections 59 and 60 of the Indian Contract Act to argue that the creditor should adjust payments as requested by the debtor. However, the court ruled that the Contract Act provisions are not applicable in tax matters governed by the Sales Tax Act, as the relationship between a dealer in tax arrears and the government is statutory, not contractual. Therefore, the court dismissed the appellant's reliance on the Contract Act provisions.

3. Regarding the applicability of section 55C to arrears of tax prior to January 1, 2000, the court clarified that section 55C applies to all payments made after that date, irrespective of the period to which the arrears relate. The court highlighted that section 55C(2) specifies that adjustments made before the provision's enforcement date should not be altered based on the subsequent enactment of section 55C(1). Thus, the court upheld the single judge's decision, affirming that all payments made post-January 1, 2000, towards tax arrears are subject to adjustment under section 55C(1), regardless of the tax period involved.

In conclusion, the court dismissed the writ appeal, upholding the adjustment of payments towards interest and tax arrears under section 55C of the Kerala General Sales Tax Act, 1963, and rejecting the appellant's arguments based on the Indian Contract Act provisions and the timing of arrears payment in relation to the enactment of section 55C.