2018 (9) TMI 300 - HC - VAT and Sales Tax

Recovery of arrears of tax, interest and penalty - recomputation of amounts - Karasamadhana Scheme-2017 - State had contended that the amount in deposit during the pendency of appeals was to be adjusted first against the head of interest and not under the head of tax as had been resorted to by the assessee - rejection of their applications on the ground of non-compliance with the eligibility conditions as regards deposit of arrears of tax, interest and penalty as envisaged under the Scheme. Held that - The payments made which are referred to by any nomen-clature being made while preferring an appeal or as a prerequisite to consider the application for stay being statutorily mandated cannot be the subject matter of appropriation till the adjudication process has reached a finality and such deposits could only be regarded as colourless deposits. The finding of the learned Single Judge as regards the payments made pending adjudication being in the nature of colourless deposits requires no interference - The very Scheme as envisaged in its preamble provided for waiver of 90% of penalty and interest remaining unpaid as on 15.03.2017; and further, it provided for payment of tax including arrears and 10% of penalty resulting in waiver of remaining penalty and interest. The purpose and intent of the Scheme was clear that all tax would be cleared and only a portion of penalty and interest need be paid. In this particular case, it is clear that the payments made by the respondents for admitting their appeals under various statutory provisions were under dispute and were not referable to any particular component of tax or penalty or interest and were only colourless deposits . Accordingly, these remittances cannot be deemed to be paid and offset from unpaid amount for calculation of arrears to be waived. Appeal dismissed.

Summary

Issues Involved:
1. Validity of the State's rejection of applications under the 'Karasamadhana Scheme-2017'.
2. Interpretation and application of the 'Karasamadhana Scheme-2017' provisions.
3. Appropriation of payments made during the pendency of appeals.
4. Determination of 'arrears of tax, interest, and penalty' under the Scheme.
5. Classification of payments as 'colourless deposits'.

Detailed Analysis:

1. Validity of the State's Rejection of Applications under the 'Karasamadhana Scheme-2017':
The State rejected the applications filed by the assessees under the 'Karasamadhana Scheme-2017' on the grounds that the computation of arrears by the assessees was incorrect. The assessees had adjusted deposits made during the pendency of appeals towards tax first, then towards the balance of tax, and 10% of interest and penalty, seeking waiver of 90% interest and penalty. The State contended that deposits should be adjusted first against interest, not tax.

2. Interpretation and Application of the 'Karasamadhana Scheme-2017' Provisions:
The Scheme aimed to provide a waiver of 90% of arrears of penalty and interest payable under various taxing statutes, subject to compliance with certain conditions. The Scheme included provisions for the submission and scrutiny of applications, computation of arrears, and the requirement for assessees to withdraw appeals to avail benefits. The learned Single Judge set aside the State's rejection of applications, accepting the assessees' contention that deposits should be adjusted first towards tax.

3. Appropriation of Payments Made During the Pendency of Appeals:
The core issue was whether the payments made during the pendency of appeals should be appropriated first towards tax or interest. The learned Single Judge relied on the decision in Mangilal S. Jain v. Commissioner of Income Tax, which held that specific appropriation provisions under the Income Tax Act and general law would be inapplicable to payments made pending adjudication. The Court held that such payments should be treated as 'colourless deposits' until the final adjudication of the appeals.

4. Determination of 'Arrears of Tax, Interest, and Penalty' under the Scheme:
The Scheme defined 'arrears of tax' and 'arrears of penalty and interest' and provided for the procedure to compute these arrears. The learned Single Judge ruled that the computation of arrears should be done by adjusting the deposits first towards tax, then towards penalty and interest. This interpretation was necessary to avoid absurd results and to give effect to the Scheme's objective of granting a 90% waiver of penalty and interest.

5. Classification of Payments as 'Colourless Deposits':
The Court held that payments made pending adjudication of appeals are 'colourless deposits' and cannot be appropriated until the adjudication process reaches finality. The Court relied on precedents like Nestle India Limited v. Asstt. Commissioner of C.Ex., Mysore-II, and Voltas Limited v. Union of India, which held that pre-deposits made for the purpose of availing the right of appeal should be refunded or adjusted only after the final adjudication.

Conclusion:
The High Court upheld the learned Single Judge's order, dismissing the State's appeals. The Court directed that the computation of arrears under the 'Karasamadhana Scheme-2017' should be done by adjusting deposits first towards tax and then towards penalty and interest. The payments made during the pendency of appeals were deemed 'colourless deposits' and could not be appropriated until the appeals reached finality. The judgment emphasized the need to interpret the Scheme in a manner that avoids absurdity and fulfills its objective of granting a substantial waiver of penalty and interest.