2018 (10) TMI 1710 - HC - VAT and Sales Tax

Interpretation of statute - Karasamadhana Scheme, 2017 - Waiver of penalty and interest - recovery of tax arrear - HELD THAT - The issue decided in the case of M/S. WS RETAIL SERVICES PRIVATE LIMITED VERSUS THE STATE OF KARNATAKA, COMMERCIAL TAX OFFICER (AUDIT) AND ASSISTANT COMMISSIONER OF COMMERCIAL TAXES, BANGALURU 2017 (11) TMI 864 - KARNATAKA HIGH COURT where it was held that the rejection of the applications filed by the petitioners-assessees under the Scheme KSS 2017 , after adjustment of the amounts deposited by them after the assessment orders were passed, first under the head interest and thereafter computing the arrears of tax, interest and penalty is unsustainable in law and illegal. Petition allowed - decided in favor of assessee.

Issues Involved:
1. Interpretation of the provisions of the Karasamadhana Scheme, 2017.
2. Sequence of adjustment of payments made towards tax, interest, and penalty under the Scheme.
3. Legal status of deposits made pending adjudication – whether they are 'colourless deposits'.

Detailed Analysis:

1. Interpretation of the Provisions of the Karasamadhana Scheme, 2017:
The primary issue in this case revolves around the interpretation of the Karasamadhana Scheme, 2017 (KSS 2017). The court referred to its previous decision in WS Retail Services Private Limited v. State of Karnataka, where it elucidated the Scheme's structure. The court emphasized that the Scheme aims to facilitate quicker recovery of tax arrears by providing a waiver of 90% of the penalty and interest, contingent upon the payment of the full tax amount and 10% of the penalty and interest arrears by the dealer.

2. Sequence of Adjustment of Payments:
The court highlighted the sequence in which payments should be adjusted under the Scheme. It stated that tax forms the foundation of any demand under tax laws, followed by interest and then penalty. The court used the analogy of three boxes in a puzzle game to explain this sequence: the bottom box represents tax, the middle box represents interest, and the top box represents penalty. This sequence must be adhered to ensure the proper implementation of the Scheme. The court held that the Revenue Department must first apply any payments or deposits towards the tax arrears before adjusting them against interest and penalty.

3. Legal Status of Deposits Made Pending Adjudication – 'Colourless Deposits':
The court discussed the nature of payments made pending adjudication, referring to them as 'colourless deposits'. It stated that such deposits cannot be appropriated until the adjudication process reaches finality. These deposits remain undetermined and cannot be treated as general revenue of the State until the appellate authorities or courts finalize the demand. The court emphasized that the deposits must first be adjusted against tax arrears, and only then against interest and penalty, to align with the objectives of the KSS 2017.

Additional Judgment by Division Bench:
The Division Bench upheld the single judge's decision, reiterating that the payments made pending adjudication are 'colourless deposits' and cannot be appropriated until final adjudication. The Bench emphasized that the Scheme's purpose is to clear tax arrears and provide significant waivers on interest and penalty. It concluded that the only way to reconcile the Scheme's provisions is to adjust payments first towards tax arrears, followed by interest and penalty, to avoid absurd consequences and ensure the Scheme's intended benefits are realized.

Conclusion:
The court allowed the petition, setting aside the impugned order against the assessee. It remanded the matter back to the concerned authorities to recompute the arrears of tax, interest, and penalty in accordance with the judgment. The authorities were directed to complete this exercise within three months, ensuring the waiver of 90% of the interest and penalty under the Scheme, subject to the payments already made or to be made by the petitioners. No costs were imposed.

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