2020 (11) TMI 553 - HC - VAT / Sales Tax

Principles of Natural Justice - sufficient opportunity to show cause against the re-assessment not provided - levy of tax on interstate stock transfer and sales made locally in other States, which cannot be subjected to levy of tax in the State of Karnataka - levy of tax on subsidy received by the petitioner from the Central Government - Nutrients Based Subsidy Scheme (NBS Scheme) - HELD THAT - The essential premise for the petitioner s case, apart from the question whether there could be levy of tax on subsidy granted to the petitioner based on the aforesaid two schemes, is whether there could be a levy on interstate stock transfer and sales made locally in other States. This question incontrovertibly has not been examined and it would be imperative for the authorities to consider the same as it relates to the very jurisdiction to levy taxes on such stocks impacting the reassessment. Further, if the petitioner succeeds in this regard, the impugned order would have to be modified. As such, the impugned order will have to be set aside on this ground remanding the matter for reconsideration by the Deputy Commissioner of Commercial Taxes the third respondent . Furthermore, the other contention on behalf of the petitioner that there cannot be a levy of tax on subsidy availed by the petitioner will perforce have to be considered in the light of the dictum by the Hon ble Supreme Court in the decision of NEYVELI LIGNITE CORPORATION LTD. VERSUS COMMERCIAL TAX OFFICER, CUDDALORE AND ANOTHER (AND OTHER APPEALS AND CASES) 2001 (9) TMI 926 - SUPREME COURT and the other contentions of the petitioner. The distinction attempted on the ground that the provisions of the KVAT Act are different from the provisions of similar enactment in the State of Tamil Nadu and Kerala would not be permissible if the Hon ble Supreme Court in similar set of circumstances has decided the question in favour of an entity that has received subsidy. The impugned order passed by the third respondent is set aside and the matter remanded to the third respondent for reconsideration - petition allowed in part by way of remand.

Summary

Issues involved: Impugned order under KVAT Act - Opportunity to show cause against re-assessment - Levy on subsidy received from Central Government - Application of Supreme Court decision on fertilizer subsidy - Distinction between KVAT Act and other state Acts - Jurisdiction to levy taxes on interstate stock transfer and sales in other states.

Analysis:

1. Opportunity to Show Cause Against Re-assessment:
The petitioner challenged the order dated 25.09.2020 under the KVAT Act, claiming inadequate opportunity to defend against re-assessment. The petitioner argued that despite responding to various notices and filing a writ petition, the third respondent proceeded with the impugned order without giving a reasonable chance to demonstrate the flaws in the revised proposition notice. The petitioner contended that the levy included tax on interstate stock transfer and sales made in other states, which should not be subject to tax in Karnataka. The High Court acknowledged the petitioner's claim and granted relief by setting aside the impugned order, emphasizing the importance of providing a fair opportunity to contest the proposed tax levy.

2. Levy on Subsidy Received from Central Government:
The second issue revolved around the levy imposed on the subsidy received by the petitioner from the Central Government under specific schemes. The petitioner relied on a Supreme Court decision to argue that tax cannot be levied on fertilizer subsidies granted independently of the product price. The respondent attempted to distinguish the cited case, asserting that the provisions of the KVAT Act differed from those of other state Acts. However, the High Court emphasized that if the Supreme Court had ruled in favor of an entity receiving subsidies in similar circumstances, such distinctions would not be valid. Therefore, the Court directed the third respondent to reconsider the levy on the subsidy in light of the Supreme Court decision and other contentions raised by the petitioner.

3. Jurisdiction to Levy Taxes on Interstate Stock Transfer and Sales:
A crucial aspect of the case involved the jurisdiction to impose taxes on interstate stock transfers and sales in other states. The Court highlighted that this issue had not been adequately examined and was essential for determining the authority's power to levy taxes on such transactions. The Court stressed that if the petitioner succeeded in proving that taxes on interstate transactions were not permissible, the impugned order would need modification. Consequently, the Court set aside the order, remanding the matter to the third respondent for reconsideration, specifically instructing to assess the levy on interstate transactions.

In conclusion, the High Court allowed the writ petition in part, setting aside the impugned order and remanding the case for reconsideration. The Court emphasized the importance of providing a fair opportunity to the petitioner to contest the proposed tax levy and directed the third respondent to reevaluate the levy on the subsidy in line with relevant Supreme Court decisions. The Court also highlighted the necessity of examining the jurisdiction to levy taxes on interstate transactions, indicating that a successful challenge in this regard would require modifications to the impugned order.