2009 (7) TMI 1172 - HC - VAT and Sales Tax

Cancellation of interest levied under section 23(3A) of the Kerala General Sales Tax Act, 1963 for belated payment of turnover tax on the excise duty component of the price. Held that - Interest under section 23(3A) is mandatory in nature irrespective of pendency of any case or orders passed by any court or authority. Therefore, we allow the revisions on this issue by reversing the order of the Tribunal and by restoring the assessments levying interest under section 23(3A) of the Act. The next grievance of the respondent against the appropriation of the amount paid first towards the interest payable under the Act in terms of section 55C of the Act find no substance in this contention because the payments are made much after the introduction of section 55C which authorises the Department to adjust payment first towards interest and balance, if any, towards tax. This contention is also rejected.

Issues Involved:
1. Cancellation of interest levied under section 23(3A) of the Kerala General Sales Tax Act, 1963 for belated payment of turnover tax on the excise duty component of the price.
2. Purchase tax liability on the purchase of water by the respondent.
3. Appropriation of payments made towards interest first under section 55C of the Act.

Issue-wise Detailed Analysis:

1. Cancellation of Interest Levied under Section 23(3A):

The main issue in the sales tax revision cases filed by the Revenue was the cancellation of interest levied under section 23(3A) of the Kerala General Sales Tax Act, 1963, for the belated payment of turnover tax on the excise duty component of the price. The assessments involved were for the years 1998-99 to 2004-05. The respondent, a distillery, was liable to pay turnover tax on the sale price of liquor, including excise duty paid by the Kerala State Beverages Corporation Limited (KSBC). The Supreme Court in State of Kerala v. Maharashtra Distilleries Ltd. [2005] 141 STC 358 held that the sales turnover for the distillery includes excise duty paid by KSBC.

Despite this, the respondent did not pay turnover tax on excise duty along with their returns, leading the assessing officer to levy interest under section 23(3A) for the belated payment of turnover tax. The Tribunal, however, relying on decisions like J.K. Synthetics Ltd. v. Commercial Taxes Officer [1994] 94 STC 422 and Maruti Wire Industries Pvt. Ltd. v. Sales Tax Officer [2001] 122 STC 410, held that interest is payable only after the respondents committed default in payment after service of assessment order and demand notices in 2006.

The court found that the Tribunal wrongly assumed that interest was levied under section 23(3) whereas it was actually under section 23(3A), which provides for interest on the non-payment or short-payment of tax from the due date on which such tax would have been payable had the dealer filed correct returns. The court clarified that interest under section 23(3A) is compensatory in nature and is payable for the belated payment of turnover tax on excise duty component. The court reversed the Tribunal's decision and restored the assessments levying interest under section 23(3A).

2. Purchase Tax Liability on Purchase of Water:

The Revenue raised a question on the purchase tax liability on the purchase of water by the respondent. However, the court did not consider this a question of law as the finding was based on factual conclusions arrived at by the Tribunal. Therefore, this issue was not further analyzed.

3. Appropriation of Payments towards Interest First under Section 55C:

The respondent contended against the appropriation of the amount paid first towards the interest payable under the Act in terms of section 55C. The court rejected this contention, stating that the payments were made after the introduction of section 55C, which authorizes the Department to adjust payments first towards interest and then towards tax. The court upheld this provision and rejected the respondent's grievance.

Conclusion:

The sales tax revisions were allowed, and the court directed the officer to correct any mistakes regarding the credit given for payments or the working out of interest, allowing the respondent to make an application for such corrections.

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