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TMI Blog2017 (11) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation 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. - W.P no 33176/2017, W.P No. 32658/2017 W.P. 32659-670/2017 W.P. 33470-472/2017 W.P 35892/2017 W.P. Nos. 25349, W.P. Nos. 31438-448/2017, W.P. Nos. 25350/2017, W.P. Nos. 30508-518/2017 In W.P No. 33176/2017 - - - Dated:- 14-11-2017 - MR. DR. VINEET KOTHARI, J. For The Petitioner : Tarun Gulati, Kishore Kunal, Arun Sri. Kumar, Udaya Holla , Sr. Counsel, J.P. Singh, K.N. Chethana, Mohd. Mujassin, S. Ganesh, M. Thirumalesh and K.M. Shivayogimath, Advs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd penalty was to be waived by the Respondent-State. The said waiver was subject to the further condition that the petitioner-assessee will withdraw his pending appeals, revision petitions or writ petitions or any other litigation pending in any Court or Tribunal. Thus, the twin objectives of putting an end to the litigation and quicker recovery of the whole amount of the due tax and 10% of interest and penalty was sought to be achieved by the said Scheme. 5. The two important definitions in the said Scheme are reproduced below for ready reference:- 1.1 Arrears of tax means tax assessed/reassessed as per the provisions of the KST and CST Acts relating to all the assessment years upto 31/03/2005 and tax assessed/reassessed as per the provisions of the KVAT Act and CST Acts relating to the tax periods for all the years commencing from 01/04/2005 upto 31/03/2016 and also tax assessed/reassessed under the provisions of KTEG Act, KTPTC E Act, KTL Act, KAIT Act and KET Act relating to all the years upto 31/03/2016 and remaining unpaid upto 15/03/2017. 1.2 Arrears of penalty and interest means all kinds of penalties levied and all kinds of interest accrued under the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e since withdrawn to avail of the benefits of the Karasamadhana Scheme, 2017 . 7. As far as the scrutiny of the application filed under the said KSS 2017 by the dealer was concerned and which has given rise to the present controversy and the litigation before this Court are Clauses 3.2 to 3.8. These Clauses are quoted below for ready reference:- 3.2 The concerned Assessing Authority/Recovery Officer/Prescribed Authority shall scrutinize the Application and workout the actual arrears of tax, penalty and interest payable by the dealer or person or proprietor, as the case may be, upto the date of filing of Application and if any discrepancies are found in the amount of arrears of tax and arrears of penalty and interest payable upto the date of Application as declared by the dealer or person or proprietor in his Application, then the concerned Assessing Authority/Recovery Officer/Prescribed Authority shall inform the dealer or person or proprietor within 15 days from the date of filing of Application about the discrepancies. 3.3. After receipt of information form the Assessing Authority/Recovery Officer/Prescribed Authority, the dealer or person or proprietor, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due to be paid, so as to determine the arrears of tax or arrears of interest and penalty , as defined in the KSS 2017 quoted above. 9. This adjustment of amount paid during the pendency of the appeals etc., which were required to be withdrawn by the Dealers first against the head of interest and not against the tax as per the assessment order has led to this litigation by way of present writ petitions. While, the assessees contend that the adjustment should have been made first against the arrears of tax as per the adjudication orders and the balance amount of tax and 10% of interest and penalty as per the adjudication order was only required to be paid by them to avail the benefit of KSS 2017 . The Department, on the other hand, contends that by virtue of Section 42(6) of the KVAT Act, 2003, they are entitled to adjust these payments or deposits subject to appeals against the outstanding interest amount first and only the balance amount can be adjusted against the tax or penalty parts of the total demand raised by the Assessing Authority. 10. This obviously resulted in more demand of arrears of tax, interest or penalty, upon such scrutiny of the application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, such adjustment can be made under the head of interest and thereafter, under the head of penalty . (iv) They further submitted that unless the amount of tax is found due, the question of levying and computation of interest which is compensatory in nature cannot arise and so also, the question of determining the quantum of penalty which requires generally the presence of mens rea on the part of the dealer and is computed as a percentage of tax amount also cannot arise, if tax due is not there. In other words, the amount of deposit made in pursuance of the impugned assessment order, subject to their right to contest such adjudication before the Appellate Forums, is nothing but a trust money with the Department, which the Respondents cannot adjust first against the interest and thereafter against the tax or penalty . (v) It was also contended that the provisions of Section 42(6) is only in one of the 8 enactments covered by KSS 2017 and the same cannot be applied uniformly for all the enactments covered by the KSS 2017 in the absence of the similar provisions existing in all such enactments, which they contended, do not so exist and therefore, for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Scheme, on the other hand, indicate that the Assessing Authority will help the Dealers in the correct quantification of the amounts of interest and penalty and for removal of difficulties, the Commissioner of Commercial Tax may issue necessary instructions to his subordinates, but the Revenue Authorities in the present cases have distorted the purpose of the said Scheme by taking only a Pro-Revenue stand by first adjusting the entire deposit made by the assessee, which is generally made to the extent of 30% of the demand as required by the appellate provisions under Section 62(4) and 63 of the KVAT Act, 2003 against the demand of interest and then demanding the whole of arrears of tax over and above the admitted tax liability of the Dealer and then only the minimal remaining balance towards the tax and penalty amount as per the original assessment orders. Such was not the intention of the specially enacted and self contained beneficial Scheme in the form of KSS 2017 , announced by the Hon ble Chief Minister just before the new indirect tax regime in the form of GST (Goods and Services Tax), which substituted levy of amount of VAT tax, Service Tax, Excise Duty etc., and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey have done and then informing the Dealers about the balance of arrears of tax, interest and penalty as per the original assessment orders and subject to complying with the other conditions of the Scheme like withdrawal of the appeals and payments of whole of the arrears of tax and 10% of arrears of interest and penalty only, they could be given the waiver of remaining 90% of interest and penalty in terms of the provisions of the said KSS 2017 and therefore, there is nothing wrong in the stand taken by the Department in the present cases. 16. Mr.Aditya Sondhi, learned AAG further contended that the entire KSS 2017 , itself is a voluntary Scheme and the State has not compelled any dealer to compulsorily go for it and opt for the same and therefore, if they did not find it suitable to avail the benefit of the said Scheme in the present cases, they had all the options, not to go for it and continue with their litigation at the Appellate Forums or Courts and any concession given in the form of waiver under the KSS 2017 , does not create any vested right in the Dealers to claim the adjustment of the amounts paid by them against the tax dues first and only thereafter against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Commissioner may permit, subject to such conditions as may be prescribed, payment of tax or any other amount payable, in such instalments and at such intervals as may be prescribed. (2) Every registered dealer shall, on receipt of a Notice from the prescribed authority, pay any penalty or interest due in such manner as may be prescribed. (3) (a) Notwithstanding anything contained in this Act, the Government may, in such circumstances and subject to such conditions as may be prescribed, by notification, defer payment by any new industrial unit of the whole or any part of the tax payable in respect of any period and also permit payment of such tax before the expiry of any deferred period, subject to the condition that in respect of such industrial unit the Government has already notified deferred payment of tax under the provisions of the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957).] (b) Notwithstanding anything contained in this Act but subject to such conditions as the Government may, by general or special order specify, where a dealer to whom incentives by way of deferment offered by the Government in its orders issued from time to time has been gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any Magistrate, by such Magistrate as if it were a fine imposed by him. (10) Where a dealer or other person who has appealed or applied for revision of any order made under this Act and has complied with an order made by the appellate or the revising authority in regard to the payment of the tax or other amount, no proceedings for recovery under this Section shall be taken or continued until the disposal of such appeal or application for revision. (11) The High Court may, either suo motu or on an application by the Commissioner or any person aggrieved by the order, revise any order made by a Magistrate under clause (c) of sub-section (9). (12) Where for the purpose of complying with the requirement of any law for the production of a clearance certificate with respect to payment of tax or any other amount under this Act, a registered dealer makes an application to the prescribed authority, the prescribed authority shall, if no amount of assessed tax or no other amount under this Act is due by such dealer or no amount of tax payable in accordance with the provisions of sub-section (1) of Section 35 is outstanding from such dealer, issue a clearance certificate i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate Tribunal shall not make any further order staying proceedings of recovery of the said tax or other amount . 19. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In order to appreciate the rival contentions raised before this Court, one has to understand the basic Scheme of levy of tax, interest and penalty itself under the taxing statutes. While the tax as per the charging provisions of these enactments is a compulsory exaction of tax from the subjects, the levy of interest even though the necessary corollary of tax is a compensatory levy in nature, to compensate the State for the loss caused to it by the non-payment of the due tax for the period for which it remains unpaid and the third component viz., penalty which generally depends upon the presence of guilty animus or mens rea on the part of the tax payer, is also consequential and depends upon the amount of tax itself being first found to be due, because the calculation of the penalty amount is also based on the amount of tax itself. 24. The first essential component of the entire demand under the assessment orders under the tax laws is always the tax, thereafter only, the determination of interest and penalty can be made. If the tax itself is not due, the question of levying interest and penalty upon that does not arise. 25. Tax is at the Foundation of Demand under Tax La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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. 30. Section 42(6) of the Act contained in only one of the eight enactments covered by the said Scheme, is applicable only where the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uiring them to pay the arrears of tax as per the impugned assessment orders, without taking into account the payments already made. 34. The normal and ordinary sequence of levying of these three components of demand namely, the tax, interest and penalty should be followed in the beneficial piece of legislation like KSS 2017 in the present case. The provisions of Section 42(6) of the Act cannot be given an overriding and encroaching effect upon the provisions of the Scheme itself, so as to permit the prior adjustment against the interest head, as claimed by the revenue authorities. That will render the computation exercise under clause 3.2 tilted and biased in favour of the Revenue, rather than the normal and ordinary prudence in the computation of total tax and other demands under these enactments. In the considered opinion of this Court, the aforesaid manner of computation only serves the purpose of the Scheme and renders the Scheme practically available to the Dealers to avail the same for serving the twin objectives of the said Scheme for the sides. 35. The well settled rule of interpretation of Tax laws that in case the two views are possible, the one favourable to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o put an end to the litigation and to realize the tax arrears locked up in litigation the scheme was conceived and put into effect. The effect of the scheme is that if 30% of the disputed income is paid, that would be accepted in full and final settlement resulting in waiver of payment of tax on the remaining portion of the disputed income and waiver of interest as also the penalty if any. 13. If any amount paid towards arrears during the pendency of the litigation (by way of appeal, revision, etc.) is to be irreversibly adjusted against the interest under Section 140A, that would render infructuous the pending litigation (in this case pending revision petition). Surely that cannot be and in fact is not the intention. As noticed above, if the appellant had succeeded in the revision petition, his liability towards interest would have been deleted/reduced and obviously the sum of ₹ 60,000 that has been paid by him towards tax arrears would have adjusted either against the tax or would have been refunded. Therefore, the Explanation to Sub-section (1) of Section 140A of the IT Act applies only where the liability has attained finality. This is clarified by the Department it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider the reasoning of the High Court . 40. In Union of India and Others v. Onkar S.Kanwar and Others [(2002) 7 SCC 591], the Hon ble Apex Court again with reference to the Kar Vivad Samadhan Scheme, 1998 , which also covered the Excise Duty disputes, held that determination of amount of tax, the arrears under Kar Vivad Samadhan Scheme, is a settlement of tax arrears and not an adjudication on the subject matter of Demand Notice or Show-cause Notice. The relevant extract from paragraphs 14 and 15 from the said judgment is also quoted below for ready reference:- It is settled law that when an appeal is pending there is no finality to the proceedings. The proceedings are then deemed to be continuing. Undoubtedly, at one place the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order seems does state that the show-cause notice should be pending adjudication. However, the same Order also talks of the show-cause notice being in respect of the same matter on which the show-cause notice has been issued to the main declarant. Then the Order provides that a settlement in favour of the declarant will be deemed to be full and final in respect of other persons also. This O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court dismissed the said Special Leave Petition filed by the Union of India [1997 (94) E.L.T. A159 (S.C.)] thereby confirming the judgment of the Bombay High Court. The Madras High Court in somewhat identical circumstances has ordered refund along with 15 percent interest. It is also to be noticed at this stage that the respondents themselves in the light of dismissal of SLP by the Supreme Court has chosen to issue circular instructions dated 2-1-2002. They have stated that such refund application under Section 11B(1) need not be insisted upon in the light of the judgment of the Supreme Court. In these circumstances, the endorsement at Annexure-H has no legs to stand and the same has to fail in the light of the judgment of the Supreme Court confirming the Bombay High Court judgment. Pre-deposit amount cannot be equated to excise duty as held by the Bombay High Court and confirmed by the Supreme Court . 42. To the same effect, the Division Bench of the Delhi High Court in Voltas Limited v. Union of India [1999(112) E.L.T.34 (Del.)], also held that the pre-deposit under Section 35F of the Act is a deposit pending appeal and it is not available for appropriation or disbursal by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment towards a portion of the liability under the Scheme, and effect appropriation, in tune with the terms of the Scheme . 44. The Division Bench of Gujarat High Court in Shaily Engineering Plastics Ltd., v. Designated Authority under Kar Vivad Samadhan Scheme [(1999) 239 ITR 90 (Guj) ] dealing with the Kar Vivad Samadhan Scheme, 1998, under Income Tax law, also held that the Scheme only concerns the liability already determined and existing and remaining outstanding. The Division Bench of the Gujarat High Court held that a honest tax payer who seeks the Scheme benefit under Kar Vivad Samadhan Scheme , cannot be put to more disadvantageous position in comparison to a disputant assessee and the purpose of such Scheme is not only the recovery of all the arrears, but it is interwined with settlement of the disputes. The relevant portion of the said judgment is quoted below for ready reference:- Looking to the Scheme of the Act one plausible view appears to be, that as the Scheme does not apply where there is no dispute between the assessee and the Revenue and the tax determined and arrears of tax are admitted, the benefit which has been extended under the Scheme is onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Authority and therefore, unlike Section 62(4) of the KVAT Act, 2003, the provisions being different in Gujarat, the Court took a view there that the deposit is in the nature of pre-deposit, whereas under the Karnataka law, there is no use of word deposit under the provisions relating to appeal or in Section 42 of the Act. 48. This judgment is of no application to the present case, as this Court has held that 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. 49. Similarly, the reliance placed by the learned AAG on the judgment of the learned Single Judge of this Court in V.Venugopala Reddy v. Commissioner of Income Tax Another [(1999) SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 52. The Writ petitions are accordingly allowed and quashing and setting aside the impugned orders passed by the Respondents-Authorities of the Department, the matters are remanded back to the concerned authorities for re-computing the arrears of tax, interest and penalty, in the manner indicated above in this judgment and then pass appropriate orders and subject to payments already made by the petitioners-assessee or further payments to be made by them in accordance with the provisions of the Scheme as interpreted by this Court above, the waiver of the interest and penalty to the extent of 90% shall be granted to the petitioners-assessees under the said Scheme. The said exercise be completed within a period of three months from today. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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