2016 (6) TMI 903 - HC - VAT and Sales Tax

Refund of tax deposited - Continuation of exemption after migration from KST Act to KVAT Act 2003 w.e.f. 1.4.2005 - a tax holiday of ten years was to be granted to information technology units from the date of commencement of commercial production. - refund was denied on the ground that if the unit collects any amount by way of tax it shall become ineligible for exemption. Held that - The notification providing for such ineligibility was under the KST Act which was followed in the case of CST Act up to March 31 2005. When the subsequent notification dated April 18 2005 (effective from April 1 2005) issued under the KVAT Act itself provides for collection of tax and such benefit of exemption is granted for Karnataka value added tax even when the assessee collects tax then the same cannot be denied to the same assessee under the CST Act as admittedly the procedure provided under the general sales tax law of the State (which presently would be KVAT Act) would be applicable for the purpose of Central sales tax but the substantive provisions of the CST Act were to be followed. The finding given by the Tribunal with regard to ineligibility of the assessee/petitioner for being granted exemption only because it had collected tax cannot bejustified in law. As we have already noted above the procedure under the KVAT Act was to be followed for Central sales tax also and thus the refund given to the petitioner/assessee was fully justified and ought not to have been reversed. The law is thus clear that once an assessee is found entitled to grant of exemption the procedure for the same is to be construed liberally in favour of and for the benefit of the assessee. In the present case the petitioner is admittedly eligible for grant of exemption. As such the petitioner cannot be denied the benefit on technical grounds. - Refund allowed - Decided in favor of assessee.

Summary

Issues Involved:
1. Eligibility for tax exemption under the CST Act post-April 1, 2005.
2. Validity of the procedure for tax exemption and refund under the KVAT Act.
3. Justification for the denial of tax refund and reopening of cases for the period April 1, 2005 to March 31, 2007.
4. Interpretation of beneficial legislation and notifications.

Detailed Analysis:

1. Eligibility for Tax Exemption Under the CST Act Post-April 1, 2005:
The primary issue revolves around whether the petitioner is entitled to collect CST and subsequently claim a tax refund as per Notification No. FD 56 CSL 2005(1) dated April 18, 2005, under the KVAT Act. The petitioner argued that the exemption granted under the CST Act should follow the same procedure as the KVAT Act post-April 1, 2005. The court noted that the procedure for tax exemption had undergone significant changes after April 1, 2005, allowing for the collection of tax and subsequent refund, which was not restricted by the earlier notification dated August 21, 1997, under the KST Act.

2. Validity of the Procedure for Tax Exemption and Refund Under the KVAT Act:
The court examined the notifications dated April 18, 2005, which provided a new procedure for tax exemption under the KVAT Act. This procedure required the collection of output tax, deduction of input tax, and payment of net tax, which would then be refunded. This new procedure was deemed applicable for both the KVAT Act and CST Act, thereby nullifying the condition from the earlier notification that collecting tax would render the unit ineligible for exemption.

3. Justification for the Denial of Tax Refund and Reopening of Cases for the Period April 1, 2005 to March 31, 2007:
The petitioner had collected and deposited tax under both the KVAT Act and CST Act from April 1, 2005, to March 31, 2007, and claimed refunds which were initially allowed. However, the benefit was denied post-April 1, 2007, and the cases for the earlier period were reopened under section 63A of the KVAT Act. The court found this denial and reopening unjustified as the procedure for tax exemption had changed, and the petitioner had complied with the new procedure. The court emphasized that the Department had initially accepted the returns and granted refunds, indicating an understanding consistent with the petitioner's interpretation.

4. Interpretation of Beneficial Legislation and Notifications:
The court highlighted the principle that beneficial legislation or notifications should be liberally interpreted to favor the assessee. Citing the Supreme Court's decision in Associated Cement Companies Ltd. v. State of Bihar, the court noted that once an assessee is found eligible for exemption, the procedure should be construed liberally. The petitioner was found eligible for exemption, and thus, the benefit could not be denied on technical grounds.

Conclusion:
The court concluded that the denial of tax refund under the CST Act post-April 1, 2005, based on the earlier notification's condition, was unjustified. The procedure for tax exemption had changed, and the petitioner had complied with the new procedure. The court ruled in favor of the petitioner, directing the assessing officer to give effect to this order within three months.

Order:
The petitions were allowed, and the assessing officer was directed to implement the court's order expeditiously.