2014 (6) TMI 828 - HC - VAT and Sales Tax

Benefit of Amnesty Scheme under KGST - tax with interest paid after the budget announcement but before the effective date - revenue refused to grant the benefit of amnesty scheme since the tax was paid before the effective date on which scheme came into force - Held that - budget proposal was made as to the introduction of the Amnesty Scheme with effect from April 1, 2010 till June 30, 2010 and it was after the said budget speech, the petitioner volunteered to effect the payment of Rs. 75,000 as a token of bona fides to have the liability settled, simultaneously seeking to keep the revenue recovery proceedings in abeyance till the above scheme was notified and the application to be preferred by the petitioner was considered accordingly, as requested in exhibit P2 dated March 20, 2010. Obviously, the declaration of the scheme and the benefit sought to be extended thereunder, enabling the defaulters to opt for the same, to clear the liability, availing of the benefit of waiver of a substantial portion of the liability was with an intent to generate revenue in a better and effective manner, rather as a measure of give and take policy. The success of the scheme notified earlier, with regard to the revenue collection, the factual circumstance that the several persons could not make use of the opportunity because of the time-limit and other adverse circumstances as given in exhibit P1 budget speech, etc., weighed much and the Legislature thought it fit to renotify the scheme, providing necessary provisions in the Finance Bill, 2010. Declaration of such scheme is purely a matter of policy of the Government. Once such a policy was declared and proclaimed to be given effect to from April 1, 2010, the first question that comes up for consideration is whether there could have been any further coercive proceedings under the Kerala Revenue Recovery Act from the part of the respondents, particularly the second respondent. The petitioner was very much at liberty to wait till April 1, 2010, filing necessary application to have his matter considered as to the eligibility and to have satisfied the liability without effecting any pre-deposit as done by him in the instant case. If the stand of the respondents is to be accepted, it may have to be said that the person who effects a portion of the liability after announcement of the scheme is being penalized for having effected such payment. This court does not think that such an anomalous situation is contemplated, intended or sought to be implemented by State/Legislature. More so since, once the scheme is announced and specified to be commenced from the first day of the relevant financial year, for a specified period, it may not be proper for the State/Department to augment the revenue collection by resorting to coercive steps before the defaulters get an opportunity to apply for and obtain the benefit of the scheme, which otherwise can only defeat or frustrate the scheme itself and in turn, the policy of the Government. The respondents are directed to pass fresh orders quantifying the liability of the petitioner, in the application preferred for extending the benefit under the Amnesty Scheme , giving credit to a sum of Rs. 75,000 paid by him as payment towards a portion of the liability under the scheme, and effect appropriation, in tune with the terms of the scheme. - Decided in favour of assessee.

Issues Involved:
1. Appropriation of payments made before the implementation of the Amnesty Scheme.
2. Validity of the department's action under section 55C of the Kerala General Sales Tax Act.
3. Applicability of previous court decisions to the current case.
4. Policy implications of the Amnesty Scheme and its implementation.

Detailed Analysis:

1. Appropriation of Payments Made Before the Implementation of the Amnesty Scheme:
The petitioner firm was in arrears of sales tax for the year 1997-98, and recovery steps were initiated to realize dues amounting to Rs. 3,82,015, including interest. The Amnesty Scheme was proposed in the Kerala budget speech of 2010, effective from April 1, 2010, to June 30, 2010. The petitioner, upon learning about the scheme, paid Rs. 75,000 on March 20, 2010, requesting it to be adjusted against the principal tax and surcharge. However, the department appropriated this amount against "interest" under section 55C of the KGST Act, as the scheme had not yet come into force on the payment date.

2. Validity of the Department's Action Under Section 55C of the Kerala General Sales Tax Act:
Section 55C(1) of the KGST Act mandates that any payment made should first be appropriated towards interest accrued on such tax or other amounts, notwithstanding any contrary request by the payer. Section 55C(2) provides that if any payment was set off towards the principal amount before the section came into effect, no recomputation should be made under subsection (1). The department justified its action by citing this provision, arguing that the payment made before the scheme's commencement could only be credited against "interest."

3. Applicability of Previous Court Decisions to the Current Case:
The respondents cited two decisions: ABY Engineers and Consultants (P) Ltd. v. Assistant Commissioner and Assistant Commissioner (Assessment) v. Martin and Harris Pvt. Ltd. The former dealt with the appropriation of payments made before the introduction of section 55C, where it was held that payments made after January 1, 2000, should be appropriated first towards interest. The latter involved the withdrawal of benefits under the Amnesty Scheme for non-compliance with its conditions. However, the court found these decisions not directly applicable to the current case, as the facts and circumstances differed significantly.

4. Policy Implications of the Amnesty Scheme and Its Implementation:
The court emphasized that the Amnesty Scheme was introduced as a policy measure to generate revenue effectively, allowing defaulters to clear their liabilities with substantial waivers. The petitioner's payment of Rs. 75,000 was made in good faith, anticipating the scheme's benefits. The court found it unreasonable for the department to penalize the petitioner for making an early payment, which was intended to demonstrate bona fides and contribute to state revenue. The court noted that the scheme's success depended on encouraging voluntary compliance rather than resorting to coercive measures before the scheme's official commencement.

Conclusion:
The court set aside the department's action of appropriating the Rs. 75,000 payment against interest and directed the respondents to pass fresh orders quantifying the petitioner's liability under the Amnesty Scheme, giving credit to the payment made. The court mandated this process to be completed within one month, allowing the petitioner to clear the re-fixed liability by the extended scheme deadline of September 30, 2010. The writ petition was allowed without costs.

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