2021 (3) TMI 956 - HC - VAT and Sales Tax

Levy of interest under sub Section 2 of Section 7 of the KTEG Act - insertion of sub-section 3 of Section 7 of the KTEG Act - Section 15A of the Karnataka Tax on Entry of Goods, 1979 - HELD THAT - From perusal of Section 7(1) of the Act, it is evident that under the aforesaid provision, the registered dealer is required to send every month to the Assessing Authority the statement containing such particulars as may be prescribed and shall pay in advance the full amount of tax payable by him. A conjoint reading of Sections 7(1) and 7(2) of the Act discloses that the provisions of Section 7(2) apply to non payment of tax which is declared under Section 7(1) of the Act. In other words, where the dealer admits the liability under Section 7(1) of the Act and in case commits a default, the provisions of Section 7(2) of the Act are applicable whereas Section 8(2) of the Act applies to the dealer in whose case an assessment has been made and the default is made in payment of tax so assessed. The subject matter pertains to Assessment Years 2001-02 to 2008-09. The dealer admittedly paid the taxes and the amount of penalty between the period from 03.03.2010 to 31.03.2011 i.e. prior to passing of the order dated 07.07.2012 and much prior to issuance of clarification by the Commissioner with regard to tax liability on 07.07.2014. Therefore, the provisions of Section 7(2) of the Act could not be invoked in the case of the assessee. The substantial questions of law involved in this petition are answered against the appellant and in favour of the dealer - petition dismissed.

Summary

Issues:
1. Interpretation of Sections 7(1) and 7(2) of the Karnataka Tax on Entry of Goods Act, 1979.
2. Applicability of interest and penalty under Section 7(2) of the Act in a specific case.

Issue 1: Interpretation of Sections 7(1) and 7(2) of the Act:
The petition raised questions regarding the Tribunal's order's compliance with Circulars, Acts, and Rules. The petitioner contended that interest levy is automatic upon tax default under Section 7(2) of the Act. The Tribunal was criticized for accepting the dealer's explanation post a Commissioner's clarification on tax liability of cutting tools. The respondent argued that as tax liability was not admitted, Section 7(2) was inapplicable, relying on relevant case laws.

Issue 2: Applicability of interest and penalty under Section 7(2):
The respondent, a registered dealer of machinery parts, faced tax assessment for the years 2001-2009 without interest levy initially. Subsequently, interest and penalty were imposed, leading to appeals and the Tribunal's decision in favor of the dealer. The petitioner emphasized a 2002 notification excluding certain machinery from tax. The Tribunal's decision was supported by the dealer's tax payment and penalty settlement pre-clarification by the Commissioner in 2014.

The Court analyzed Sections 7(1), 7(2), and 8(2) of the Act, highlighting that Section 7(2) applies to defaults post-tax admission under Section 7(1), whereas Section 8(2) pertains to assessed tax defaulters. The Supreme Court's 2013 ruling directed dealers to seek clarifications from the Commissioner, affecting the case's tax liability clarity. Given the dealer's prior tax compliance and penalty payment, the Court found Section 7(2) inapplicable post-2014 clarification, upholding the Tribunal's decision and dismissing the petition.

In conclusion, the Court's detailed analysis of statutory provisions, case laws, and the timeline of events elucidated the non-applicability of Section 7(2) in the dealer's case, leading to the dismissal of the petition.