2016 (4) TMI 609 - HC - VAT and Sales Tax

Waiver of pre-deposit - Pre-deposit asked to grant stay of recovery of 70% disputed amounts - Manufacture of defence producta - Held that - it would be serving the purpose of both the State and the petitioner if a compromise could be arrived at in the petitioner being directed to deposit atleast 10% of the demand amount before 31st March 2016 and furnishing of a bank guarantee for the remaining 20% of the demand, subject to the result of the appeal. Accordingly, the Appellate Authority is directed to receive the same and proceed in accordance with law. - Petition disposed of

Summary

Issues:
1. Classification of goods for tax purposes under KVAT Act and CST Act.
2. Re-assessment of tax liability by the Deputy Commissioner of Commercial Taxes.
3. Requirement of pre-deposit for filing an appeal before the Appellate Authority under KVAT Act.
4. Applicability of Supreme Court judgment regarding waiver of pre-deposit for Central Government undertakings.
5. Dispute regarding the necessity of pre-deposit for appeal and the State's interest in safeguarding funds.

Analysis:
1. The petitioner, a public sector undertaking manufacturing defense products, classified its goods under relevant entries of notifications issued by the State of Karnataka under KVAT Act. The Deputy Commissioner initiated audit proceedings, proposing re-assessment of tax liability on the petitioner's products, disputing the classification. The petitioner objected, but re-assessment orders were passed demanding differential tax amounts. The petitioner appealed to the Appellate Authority, challenging the re-assessment (Para 2).

2. The Appellate Authority required a pre-deposit of 30% of the disputed amount for hearing the appeal, as per Section 62 of KVAT Act. The petitioner, being a Central Government undertaking, relied on a Supreme Court judgment stating that no pre-deposit should be insisted upon in such cases. The State argued that pre-deposit ensures payment of disputed claims and is essential. The Court suggested a compromise, directing the petitioner to deposit 10% of the demand amount and furnish a bank guarantee for the remaining 20% (Para 4).

3. The State contended that allowing a waiver of pre-deposit would deprive it of necessary funds and emphasized the importance of strict compliance with deposit requirements. The Court balanced the interests of both parties by ordering a partial deposit and bank guarantee, urging expedited resolution of the appeal due to the involvement of a significant amount and the petitioner's status as a Government of India undertaking (Para 5).

4. Ultimately, the Court disposed of the petitions, directing the Appellate Authority to proceed with the deposit and bank guarantee as per the compromise, ensuring a timely hearing and resolution of the appeal (Para 6).