2022 (3) TMI 799 - HC - VAT and Sales Tax

Waiver of interest and penalty under Sections 36(1) and 72(2) of the Karnataka Value Added Tax Act, 2003 - respondent himself has accepted that he has understated his liability to tax on the sale of Nutralite during the year 2007-08 - HELD THAT - Firstly, the reassessment order passed by the prescribed authority, wherein tax at the rate of 12.5% with interest under Sections 36(1) and 72(2) of the Act relating to the sale of Nutralite was the subject matter of the appeal before the first appellate authority. The said appeal for the tax period in question came to be dismissed upholding the levy of tax at 12.5% on the sale of Nutralite Table Margarine upholding the levy of interest and penalty - the reassessment order passed allowing the input tax credit of 4% on the purchase of Table Margarine made by it from M/s Pioneer Marketing confirmed by the first appellate authority, has been upheld. Having regard to these aspects, the Tribunal observed that there was no understatement of output tax liability and overstatement of entitlement to input tax credit by the assessee in the return filed and accordingly, set aside the levy of penalty and interest. Secondly, it is significant to note that the original order has been modified by the Tribunal in Sales Tax Rectification Application No.2/2016 vide order dated 26.4.2018 modifying the rate of tax on Margarine at 5.5% instead of 12.5% placing reliance on the decision of this Court in M/s Pioneer Marketing, supra. For the tax periods in question i.e., from April 2007 to March 2008, the reassessment order was passed considering the commodity Nutralite Margarine as unscheduled goods falling under Section 4(1)(b) of the Act - for the reasons best known to the revenue, the order passed in M/S. SKANDA DISTRIBUTORS VERSUS STATE OF KARNATAKA 2018 (4) TMI 1916 - KARNATAKA APPELLATE TRIBUNAL is challenged in the present proceedings but the question of law raised is with respect to levy of interest and penalty. No opinion expressed on the rate of tax modified by the Tribunal at 5.5% whether is justifiable when the III Schedule during the relevant period attracts the rate of 4% - The Tribunal having modified the rate of tax from 12.5% to 5.5% in terms of the order passed in Rectification Application following the decision of this Court in M/s Pioneer Marketing, 2016 (5) TMI 183 - KARNATAKA HIGH COURT , it cannot be gainsaid that there is no understatement of output tax liability or overstatement of entitlement to input tax credit by the appellant in the return filed. The petition is wholly misconstrued and is bereft of merits - Sales Tax Revision Petition stands dismissed.

Summary

Issues:
- Interpretation of Sections 36(1) and 72(2) of the Karnataka Value Added Tax Act, 2003
- Claim of input tax credit on the sale of Nutralite
- Levy of interest and penalty by the assessing authority
- Tribunal's decision on setting aside interest and penalty

Analysis:

The case involved a Sales Tax Revision Petition under Section 65(1) of the Karnataka Value Added Tax Act, 2003, questioning the Karnataka Appellate Tribunal's decision regarding the levy of interest and penalty under Sections 36(1) and 72(2) of the Act. The respondent, a registered dealer, was involved in the sale of Nutralite, a product initially taxed at 4% under Entry 31 of the III Schedule. However, a reassessment classified Nutralite as an unscheduled commodity, increasing the tax rate to 12.5%, leading to additional tax liability for the distributor.

In the reassessment proceedings, the respondent did not dispute the increased tax rate but claimed input tax credit on the additional tax paid by the supplier. The assessing authority rejected this claim, levying tax at 12.5% on the sale of Nutralite and imposing interest and penalty under the Act. The first appellate authority upheld this decision, leading to an appeal before the Karnataka Appellate Tribunal. The Tribunal partially allowed the appeal, denying the input tax credit claim but setting aside the interest and penalty, citing no understatement of tax liability or overstatement of input tax credit by the respondent.

The State, as the revision petitioner, argued that the Tribunal erred in setting aside the interest and penalty, especially since the respondent admitted to the underpayment of tax on Nutralite. The State highlighted a previous order modifying the tax rate on Margarine to 5.5% instead of 12.5%, based on a court decision. However, the Court found the petition misdirected, emphasizing that the Tribunal's decision was justified. The Court noted that the Tribunal's modification of the tax rate did not indicate any understatement of tax liability or overstatement of input tax credit by the respondent, leading to the dismissal of the Sales Tax Revision Petition.

In conclusion, the Court dismissed the petition, ruling in favor of the assessee and against the Revenue, as the Tribunal's decision to set aside the interest and penalty was deemed appropriate based on the facts and circumstances of the case.