2015 (9) TMI 1273 - HC - VAT and Sales Tax

Levy of penalty - delay in payment of purchase tax - bonafide mistake - Scheme of concession to new sugar factories permitting conversion of purchase tax into interest-free loan - clubbing of turnover - Karnataka Sales Tax Act, 1957 - AO rectified its earlier order recording a finding that from out of the five units, only one unit at Munavalli was entitled to the benefit and accordingly, on the same day, issued a demand notice. Held that - The petitioner, though did not establish bona fides over the mistaken belief that all its five manufacturing units producing sugarcane were entitled to the conversion of purchase tax into interest-free loan, nevertheless, did discharge its liability immediately after issue of the demand notice dated January 23, 2010. The contention that at the first instance the assessing authority accepted the petitioner s return for the years 2006-07 and 2007-08, claiming concession followed by the assessing authority rectifying the said order and issuing a demand notice pursuant to which the purchase tax was paid, is acceptable explanation, cannot be countenanced. The facts and circumstances are a pointer to the conscious disregard of the petitioner s obligation to pay the tax, hence disentitled to a concession in the levy of penalty under section 12B(4) of the KST Act, by exercise of discretion. The first appellate authority in exercise of its discretion modified the order of the assessing authority by reducing the penalty to 50 per cent. of the tax. The order admittedly is not challenged by the Revenue and is allowed to rest. In the facts and circumstances, the point raised for consideration is answered in the negative and against the petitioner, and these petitions devoid of merit, are accordingly dismissed. - Decided against the assessee.

Issues Involved:
1. Eligibility for tax incentives under the Karnataka Sales Tax Act, 1957 (KST Act).
2. Applicability of the new unit certificate to multiple manufacturing units.
3. Imposition of penalty under section 12B(4) of the KST Act for non-payment of purchase tax.
4. Bona fide mistake and its impact on the imposition of penalty.
5. Discretion in the imposition of penalty by the assessing authority.

Detailed Analysis:

1. Eligibility for Tax Incentives under the KST Act:
The petitioner, a company engaged in the manufacture and sale of sugar, claimed tax incentives under the Karnataka Sales Tax Act, 1957. The State of Karnataka extended concessions to new sugar factories, allowing the conversion of purchase tax into an interest-free loan. The petitioner received a new unit certificate dated April 19, 2001, for its unit at Munavalli, which commenced production on November 22, 1999.

2. Applicability of the New Unit Certificate to Multiple Manufacturing Units:
The petitioner argued that the tax incentives should apply to all its units, including those at Aland, Haveri, Havalga, and Burlatti, in addition to Munavalli. However, the court found that the new unit certificate was "unit centric" and not "company specific." The certificate specifically applied to the Munavalli unit, which was the only unit that had commenced production by the relevant date. The other units were not covered by the certificate as they were not operational at the time.

3. Imposition of Penalty under Section 12B(4) of the KST Act for Non-Payment of Purchase Tax:
The assessing authority initially accepted the petitioner's tax returns but later rectified this decision, concluding that only the Munavalli unit was eligible for the tax incentive. Consequently, a demand notice was issued, and the petitioner paid the taxes due for the other units. The non-payment of purchase tax for the four other units led to the imposition of penalties for the assessment years 2006-07 and 2007-08.

4. Bona Fide Mistake and Its Impact on the Imposition of Penalty:
The petitioner claimed a bona fide mistake in assuming that the new unit certificate applied to all its units. The court, however, found this argument unconvincing, stating that the certificate clearly applied only to the Munavalli unit. The court emphasized that the petitioner did not establish bona fides over the mistaken belief, and the facts suggested a conscious disregard of the obligation to pay tax.

5. Discretion in the Imposition of Penalty by the Assessing Authority:
The court noted that while the assessing authority has discretion in imposing penalties, this discretion must be exercised judiciously. The appellate authority reduced the penalty to the minimum stipulated under section 12B(4) of the KST Act, considering the petitioner's immediate payment of the tax upon receiving the demand notice. The court upheld this decision, stating that the petitioner was not entitled to further concessions in the penalty.

Conclusion:
The High Court dismissed the petitions, concluding that the new unit certificate was applicable only to the Munavalli unit and not to the other units. The imposition of penalties for non-payment of purchase tax was justified, and the petitioner's claim of a bona fide mistake was not accepted. The appellate authority's decision to reduce the penalty was upheld, and the court found no merit in the petitions.

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