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2017 (11) TMI 864 - HC - VAT and Sales TaxWaiver of penalty and interest - recovery of tax arrear - Karasamadhana scheme - Section 42 of Chapter-V - Sections 62(4) and 63(7) of the KVAT Act, 2003 - Held that - Admittedly, the KSS 2017 , is a self contained and special piece of legislation enacted under the special circumstances in the month of March, 2017, to pave the way and to provide the clean slate for the new indirect regime of GST to be implemented from 01.07.2017 with a view to put an end to the pending litigation and also to recover the arrears of revenue under the old Enactments which were to be repealed under the new GST law. The main object and urgency of the implementation of the said Scheme carved out the special provisions in the said Scheme for achieving the twin objectives of the quicker and easy recovery of the arrears of tax and other demands and putting an end to the pending litigation. Naturally, it was a beneficial and welfare Scheme to provide the win-win situation for both the tax payers and the tax collectors. Though the said provisions made in the Scheme cannot be read as repugnant and in conflict with the provisions of relevant statutes, which the said Scheme covered but the at the same time, it also cannot be said that the usual procedure of assessment, adjudication, appeals and recovery provisions under the statutes themselves can be given the overriding effect over the said Scheme KSS 2017 , even to the extent of undoing the purpose of the Scheme itself. The stand of the Respondents-Department in the present cases, is incongruous and unsustainable and the same defeats the purpose of the Scheme for the Dealers, who voluntarily opted for the same giving up their valuable rights of disputing the entire liability as per the adjudication orders passed by the Assessing Authorities and putting an end to the litigation and paying the remaining arrears of tax, interest and penalty as per the provisions of the Scheme and thus giving finality to the dispute and achieving the twin purposes of the Scheme itself. Since under the KSS 2017 , the arrears of tax as well as the arrears of interest and penalty were to be determined in terms of the assessment order itself and remaining unpaid as on 15.03.2017, as required in Clause 2.4 quoted above, while scrutinizing the applications as per Clause 3.2 of the KSS 2017 itself, the Assessing Authority is not entitled to undertake fresh adjudication process of computing or adjusting the amounts deposited, in the manner he chose or applying the provisions of Section 42(6) of the Act - The provisions of Section 42(6) of the Act, read in conjunction and on sequence with other Sub-sections of Section 42, upon a harmonious reading would reflect that normally assessee is expected to first square up its liabitlity to pay the tax with the returns itself and thereafter upon passing of the assessment order and if the amount paid falls short of the aggregate amount of tax and other amount (penalty) and interest payable, such amount paid shall be first adjusted against interest. This sequence of payments and adjustments under Section 42(6) does not govern the payments and adjustments subject to appellate proceedings under Sections 62 or 63 of the Act nor they are applicable to special Schemes like KSS 2017 in the present case. The said Scheme is a self contained Code in itself and envisages first the complete payment of tax assessed and then only 10% of assessed interest and penalty and therefore, adjustment of amount lying deposited or paid after the assessment order should also follow the same sequence and the order of preference. The well settled rule of interpretation of Tax laws that in case the two views are possible, the one favourable to the assessee should be adopted, clearly leads this Court to the aforesaid conclusion. The stand of the Revenue on the contrary therefore is not in consonance with the over all objective and clear provisions of the KSS 2017 , promulgated with the avowed purpose of quick recovery of arrears of tax, interest and penalty and putting a quicker end to the litigation for both the parties. During the pendency of the appeal, the payment or the deposit made by the petitioners-assessees, after the assessment orders are passed, remains the colourless deposit and cannot be adjusted under any specific head of the total demand comprising of tax, interest and penalty and the full effect and play of the KSS, 2017 can be given to the assessee on a beneficial and purposive interpretation of the provisions of the said Scheme, only if such payment or deposit is first adjusted against the outstanding or arrears of tax, then against interest and then against penalty amount. This Court is of the clear opinion that the rejection of the applications filed by the petitioners-assessees under the Scheme KSS 2017 , after adjustment of the amounts deposited by them after the assessment orders were passed, first under the head interest and thereafter computing the arrears of tax, interest and penalty is unsustainable in law and illegal and the impugned orders therefore deserve to be quashed and set aside and the writ petitions deserves to be allowed - petition allowed - decided in favor of petitioner.
Issues Involved:
1. Validity and interpretation of the 'Karasamadhana Scheme, 2017' (KSS 2017). 2. Adjustment of payments made by petitioners during the pendency of appeals. 3. Application of Section 42(6) of the KVAT Act, 2003, in the context of KSS 2017. 4. Whether the amounts deposited should be adjusted first against tax or interest. 5. Legal principles governing the interpretation of tax amnesty schemes. Detailed Analysis: 1. Validity and Interpretation of the 'Karasamadhana Scheme, 2017' (KSS 2017): The 'Karasamadhana Scheme, 2017' was introduced to waive 90% of penalty and interest on the payment of full tax and 10% of penalty and interest by 31st May 2017. The scheme aimed to clear pending tax liabilities and facilitate a smooth transition to the Goods and Services Tax (GST) regime. The court emphasized that the scheme was a special, self-contained piece of legislation designed to expedite the recovery of tax arrears and resolve pending litigation. 2. Adjustment of Payments Made by Petitioners During the Pendency of Appeals: The core issue revolved around whether the payments made by the petitioners during the pendency of appeals should be adjusted first against the tax dues or interest. The petitioners argued that the payments should be adjusted against the tax dues first, while the department contended that the amounts should be adjusted first against the interest, as per Section 42(6) of the KVAT Act, 2003. 3. Application of Section 42(6) of the KVAT Act, 2003, in the Context of KSS 2017: Section 42(6) of the KVAT Act states that any amount paid by a dealer, which falls short of the total tax, interest, and penalty due, should first be adjusted towards the interest payable. The petitioners argued that this provision should not be imported into KSS 2017, as it was a special scheme with its own set of rules. The court agreed with the petitioners, stating that the provisions of KSS 2017 should be interpreted independently and in favor of the taxpayers. 4. Whether the Amounts Deposited Should Be Adjusted First Against Tax or Interest: The court held that the amounts deposited by the petitioners should be first adjusted against the tax dues. The court reasoned that tax is the foundational component of the demand under tax laws, and only after the tax dues are settled can interest and penalty be levied. The court emphasized that the scheme's purpose was to provide a clean slate for taxpayers and facilitate quick recovery of tax arrears. 5. Legal Principles Governing the Interpretation of Tax Amnesty Schemes: The court referred to various judgments, including those related to the 'Kar Vivad Samadhan Scheme, 1998,' under the Income Tax Act, to emphasize that tax amnesty schemes should be interpreted in a manner that favors the taxpayers. The court reiterated that when two interpretations are possible, the one that benefits the taxpayer should be adopted. The court also highlighted the principle that payments made during the pendency of appeals should be treated as deposits and adjusted first against the tax dues. Conclusion: The court quashed the impugned orders passed by the respondents and remanded the matters back to the concerned authorities for re-computation of arrears of tax, interest, and penalty. The court directed that the amounts deposited by the petitioners should be adjusted first against the tax dues, followed by interest and penalty. The authorities were instructed to complete this exercise within three months and grant the waiver of 90% of interest and penalty as per the scheme.
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