2010 (7) TMI 937 - HC - VAT and Sales Tax

Whether the assessee has collected sales tax on the subsidy and has not passed on the said collected tax to the Department as contended by the Department? Held that - The order passed by the assessing officer directing the assessee to make good the difference in the amount which they have collected and which they have actually paid is strictly in accordance with law. The Tribunal committed a serious error in proceeding on the assumption that tax is collected on the net amount excluding the subsidy. The amount of tax is collected before giving deduction to the subsidy. Thus though subsidy amount is deducted but tax collected on subsidy is not deducted. Therefore the difference in amount which the assessee has no right to retain is now ordered to be paid to the Department by the forfeiture order. Therefore, the Tribunal was not justified in interfering with the well considered order passed by the first appellate authority as well as the assessing officer. In that view of the matter, the order of the Tribunal cannot be sustained. Hence the order passed by the assessing officer as confirmed by the appellate authority is restored.

Summary

Issues:
Challenge to order passed by Karnataka Appellate Tribunal regarding liability under section 18AA of Karnataka Sales Tax Act.

Analysis:
The case involved a manufacturer of fertilizers who collected taxes on subsidy amounts, leading to a dispute regarding liability under the Karnataka Sales Tax Act. The manufacturer filed revised returns excluding subsidy amounts based on a court decision. The assessing officer issued a show-cause notice under section 18AA for not remitting the taxes collected on subsidies. The officer found the manufacturer in violation of section 18(1)(b) of the Act and upheld the forfeiture of the tax collected on subsidies. The Additional Joint Commissioner of Commercial Taxes dismissed the appeal, stating the taxes collected on subsidies were impermissible. The Karnataka Appellate Tribunal, however, held that the manufacturer did not contravene section 18 and set aside the lower authorities' orders, granting relief to the manufacturer.

The key issue for consideration was whether the manufacturer had collected sales tax on subsidies and failed to remit it to the Department. The Tribunal analyzed the invoices and concluded that the manufacturer had not collected taxes on subsidies from purchasing dealers, thus not violating section 18. The Revenue argued that taxes were levied on amounts inclusive of subsidies, passing the tax burden to customers. In contrast, the manufacturer contended that they collected money post-subsidy deductions and were not liable to pay any amount to the Department. The Tribunal found the Revenue's argument flawed and upheld the manufacturer's position.

The Court examined the invoice details, highlighting that while the subsidy amount was deducted, taxes on the full amount were collected, resulting in excess tax collection. The Court emphasized that the burden of tax was passed on to customers, making the manufacturer liable to refund or pay the excess amount to the Department. Referring to section 18AA(4) of the Act, the Court held that the manufacturer had no right to retain the excess tax collected. The Tribunal's error in assuming tax collection on net amounts excluding subsidies led to the order for the manufacturer to pay the excess amount to the Department. Consequently, the Court restored the assessing officer's order, holding the manufacturer liable to pay the difference in tax collected on subsidies.

In conclusion, the Court upheld the assessing officer's order, emphasizing the manufacturer's liability to pay the excess tax collected on subsidies. The decision highlighted the importance of correctly assessing and remitting taxes under the Karnataka Sales Tax Act, ultimately holding the manufacturer accountable for the excess tax collected.