2010 (8) TMI 856 - HC - VAT and Sales Tax

Whether until assessment tax due under the Act is what is declared as due by them in the monthly and annual returns filed by them? Held that - The tax on excise duty became due from the petitioners as tax due under the Act after the pronouncement of law by the Full Bench of this court on December 16, 1992(1). We, therefore, hold that the petitioners are defaulters in payment of sales tax on excise duty from the monthly returns for January, 1993 onwards. There was delay in payment in some cases up to December, 1996 and in some other cases till March, 1997 and the petitioners are liable to pay interest for the belated payment of tax on excise duty from the monthly returns filed in January, 1993 onwards. Since tax was payable along with monthly returns, interest for default is to be reckoned from the due date on which tax was payable under the monthly returns filed in January, 1993 onwards. O.Ps. and S.T. Rv stand allowed in part by deleting levy of interest for periods up to monthly return filed till December, 1992, that is up to monthly return filed for November, 1992 and by sustaining the interest levied for the remaining period of default. since all the petitioners are public sector companies, and considering the high rate of interest payable under section 23(3) which we have upheld for the periods commencing from the period after the Full Bench judgment, we feel if the petitioners clear the entire arrears of interest within one month from the date of receipt of a copy of this judgment, they should be exonerated from payment of penalty under section 45A of the Act for the assessment years 1988-89 to 1992-93 for the Indian Oil Corporation Ltd. , 1987-88 to 1990-91 for the Hindustan Petroleum Corporation and for the year 1987-88 for the Bharath Petroleum Corporation Ltd. However, if interest liability is not settled as above, penalty levied will stand sustained and if paid penalty levied will stand cancelled.The petitioners are free to adjust penalty if any paid against balance interest liability while settling interest liability as above

Summary

Issues Involved:
1. Challenge against interest levied under section 23(3) of the KGST Act.
2. Challenge against the levy of penalty under section 45A of the KGST Act.

Detailed Analysis:

1. Challenge Against Interest Levied Under Section 23(3) of the KGST Act:
The petitioners, public sector companies engaged in marketing petroleum products, did not include excise duty in the taxable turnover for sales tax purposes under section 5A of the Kerala General Sales Tax Act (KGST Act) for the years 1987-88 to 1995-96. This was despite the Supreme Court's decision in McDowell & Company Limited v. Commercial Tax Officer [1985] 59 STC 277, which established the liability for sales tax on deferred payment of excise duty. The Full Bench of the Kerala High Court, in Hindustan Petroleum Corporation Ltd. v. State of Kerala [1993] 89 STC 106, confirmed this liability, but the petitioners continued to exclude excise duty from taxable turnover until the Supreme Court dismissed their appeals in 1996.

Interest was levied under section 23(3) of the KGST Act for the delayed payment of tax on excise duty. The petitioners argued that tax was not due until assessed and demanded by the Department, citing several Supreme Court decisions. However, the court held that "tax due under the Act" includes tax payable as per the law declared by higher courts. Since the Full Bench decision in December 1992 clarified the liability, the petitioners were defaulters from January 1993 onwards. Interest was thus justified for the period from January 1993 to the dates of actual payment in 1996-97.

2. Challenge Against the Levy of Penalty Under Section 45A of the KGST Act:
The Commissioner reduced the penalty to 25% of the tax amount attributable to excise duty. The petitioners contended that their contest was bona fide and not contumacious, dishonest, or fraudulent. They relied on the Supreme Court's decision in Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211 and a Kerala High Court decision, arguing that penalty should not be levied for bona fide defaults.

The court noted that public sector companies are not presumed to act bona fide and must comply with the law, including court decisions. The petitioners should have paid the tax after the Full Bench decision, even while contesting it in the Supreme Court. Therefore, the default was deliberate, warranting penalty. However, considering the high interest rate under section 23(3), the court offered to exonerate the petitioners from penalty if they cleared the interest arrears within one month.

Conclusion:
The court allowed the petitions in part by deleting interest for periods up to December 1992 and sustaining interest for the period from January 1993 onwards. For penalty, the court provided an option to exonerate if interest arrears were settled within a month, otherwise, the penalty would stand sustained.