2018 (2) TMI 450 - HC - VAT and Sales Tax

Liability of interest - on increased tax liability due to rectification of assessment proceedings - Section 12-B(2) of the Karnataka Sales Tax Act, 1957 - Revenue is claiming interest under Section 12-B (2) of the Act based on the rectification orders passed under Section 25-A of the Act, rectifying the assessment orders - Held that - Section 12- B(1) of the Act deals with the payment of tax in advance according to which every dealer is required to file monthly returns to the assessing authority including the taxable turnover during the preceding month and shall pay in advance the full tax amount payable by him within 20 days after the close of the preceding month to which tax relates. There is no short payment of tax in terms of the monthly returns filed. If so, initiating proceedings under Section 12-B (2) of the Act to claim interest on the rectification orders passed subsequent to the assessment orders is unjustifiable - it is clear that when the assessee pays the tax which according to him is due on the basis of the information made in the return filed by him, it is highly unrealistic to expect him to pay the tax on the basis of final assessment done by the assessing authority. The assessee cannot predict the liability accruing on the basis of the rectification proceedings initiated subsequent to assessment proceedings. Revision petition dismissed.

Summary

Issues Involved:
1. Liability to pay interest under Section 12-B(2) of the Karnataka Sales Tax Act, 1957.
2. Applicability of rectification orders under Section 25-A of the Act.
3. Interpretation of 'tax payable' and 'tax due' in the context of monthly returns and final assessments.

Detailed Analysis:

1. Liability to Pay Interest under Section 12-B(2) of the Karnataka Sales Tax Act, 1957:
The primary dispute revolves around whether the respondent-company is liable to pay interest under Section 12-B(2) of the Act. The Revenue contends that interest is due based on rectification orders passed under Section 25-A, which corrected the original assessment orders. According to Section 12-B(2), interest is applicable if there is a default in the payment of advance tax for any month or quarter beyond ten days or if the amount of tax paid is less than the amount of tax payable. The Tribunal, however, ruled in favor of the respondent-company, stating that the interest liability does not arise in this case as there was no provisional assessment rejecting the returns as incorrect or incomplete.

2. Applicability of Rectification Orders under Section 25-A of the Act:
The Revenue's position is that the rectification orders issued under Section 25-A necessitated additional tax payments, thereby justifying the imposition of interest under Section 12-B(2). However, the respondent-company argued that the rectification orders do not automatically trigger interest liability under Section 12-B(2) unless there is a provisional assessment under Section 12-B(3) determining the tax liability and rejecting the returns as incomplete or incorrect. The Tribunal supported this view, emphasizing that the tax amount paid by the assessee was in line with the returns filed, and there was no short payment of tax as per those returns.

3. Interpretation of 'Tax Payable' and 'Tax Due' in the Context of Monthly Returns and Final Assessments:
The judgment extensively discusses the interpretation of 'tax payable' and 'tax due' in the context of monthly returns and final assessments. Citing the Constitutional Bench judgment of the Hon’ble Apex Court in J.K. SYNTHETICS LTD. vs. COMMERCIAL TAXES OFFICER and the Division Bench judgment in STATE OF KARNATAKA vs. MANDOVI MOTORS (PRIVATE) LIMITED, the court clarified that 'tax payable' refers to the amount due based on the returns filed by the assessee. If the returns are not rejected as incorrect or incomplete, the assessee cannot be expected to predict the final assessment or rectification outcomes. Consequently, the imposition of interest under Section 12-B(2) based on rectification orders is deemed unjustifiable.

Conclusion:
The court concluded that no provisional assessment was made under Section 12-B(3) determining the tax liability by rejecting the returns as incorrect or incomplete. Therefore, initiating proceedings under Section 12-B(2) to claim interest based on rectification orders is not justified. The Tribunal's decision to set aside the orders of the assessing authority and the first appellate authority was upheld, and the sales tax revision petitions were dismissed. The court emphasized that no question of law arises for consideration in these revision petitions, reaffirming the Tribunal's interpretation of the relevant statutory provisions.