2018 (3) TMI 1369 – KARNATAKA HIGH COURT – TMI – Demand of tax refunded earlier – manufacture of refined rice bran oil – obtained de-oiled rice bran as a by-product – partial rebate under Section 17 of the KVAT Act – interest – penalty.
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Held that: – it is clear that Annexure-C notice issued under section 42 of the KVAT Act is only for the purpose of information to the assessee and has no legal force and the same cannot be enforced. The same is held to be only for the purpose of information. Parallel proceedings initiated by the Deputy Commissioner if any, is not the subject matter of the present proceedings, there is no overlapping as such and hence, the argument of the petitioner on this ground also fails.
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Penalty – Held that: – It is trite law that penalty is not automatic, while imposing penalty, it is mandatory to provide an opportunity of hearing to the dealer but in the batch of present cases, no such penalty is levied by the prescribed authority.
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Interest – He
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unsel for Ms. Veena j. Kamath, Adv. For Kamath & Kamath, Advs.] Respondents: [By Sri T.K. Vedamurthy, Aga.) ORDER These petitions are filed challenging the correctness and legality of the order of the respondent dated 28.12.2017 as per Annexures-A1 to A18, inter alia, seeking for a direction to the respondent to furnish to the petitioner all the details, documents and information as sought for by the petitioner vide its letter dated 27.12.2017 as per Annexure-H and grant an opportunity of being heard to the petitioner. 2. The petitioner is a company engaged in the business of manufacturing of refined rice bran oil. The petitioner while in the process of manufacturing the refined rice bran oil obtained de-oiled rice bran as a by-product. While the rice bran oil was a taxable commodity under the Karnataka Value Added Tax Act, 2003 [ KVAT Act , for short], the de-oiled rice bran was an exempted product. The petitioner applied for partial rebate under Section 17 of the KVAT Act and acc
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nded as ordered, the respondents are at liberty to obtain indemnity bond from the petitioner to the extent of amount refunded. Further refund shall be subject to result of special leave petitions pending in SLP [Civil] Nos.576-596/2014. Pursuant to the order passed by this Court, the respondent refunded the excess input tax credit in respect of tax period April 2015 to January 2017 after the indemnity bond executed by the petitioner. The Hon ble Apex Court in its order dated 22.09.2017, in THE STATE OF KARNATAKA v. M/s. M.K. AGRO TECH PVT. LTD., set aside the decision of this Court in STRP Nos.774-794/2013 and held that the assessee was not entitled to claim full input tax credit and provisions of Section 17 of the KVAT Act, partial rebate was applicable. Subsequently, the respondent issued notice and sought to recover the refunded amount with interest placing reliance on the decision of the Hon ble Apex Court in the case of M.K. AGRO TECH supra, on the premise that the refund was subj
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the writ petition proceedings, learned counsel appearing for the petitioner has filed IA-2/2018 for impleading the CCT as Respondent No.2 to the proceedings. IA-3/2018 is filed seeking amendment of the writ petition under Order VI Rule 17 of the Code of Civil Procedure, 1908 read with Article 226 of the Constitution of India, to amend the writ petition. The additional relief sought by the petitioner is to quash the Circular No.09 of the CCT dated 9.10.2017 as per Annexure-J, by issuing a writ of certiorari or any other writ or order in the nature of writ. In a separate order passed by this Court, these two applications are allowed. 5. Learned Senior Counsel Sri K.P. Kumar, representing M/s. Kamath & Kamath, learned Counsel for the petitioner would submit as under: [i] KVAT Act was repealed with effect from 1.7.2017 and on the very same day, Karnataka Goods & Services Tax Act, 2017 [ KGST Act , for short], has come into effect. In terms of Sections 173 and 174 of the KGST Act, t
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on the record. The Authorities have refunded the amount based on the law holding the field on the date of passing of the refund order, if any subsequent order is passed by the Hon ble Apex Court modifying or annulling the said order of this Court, on the basis of which, refund order was issued, the same would not be a ground to withdraw the refund order and to demand/seek recovery of the refund of the amount paid. [iii] Notices under Section 42 of the KVAT Act were issued for the tax period March 2010 to January 2017 based on the circular of the Commissioner dated 9.10.2017 calculating the refund amount with the applicable interest. Again issuing notices under Section 69[1] of the KVAT Act is arbitrary exercise of the respondent. The reply to the said notice was submitted by the petitioner on 27.12.2017. On the very same day, a letter was addressed bringing to the notice of the respondent that reply notice has been sent through RPAD and the same may be delivered in the next few days.
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t. Therefore, in case of necessity of the said circular, petitioner can contact the CCT, Bengaluru. It was mandatory on the part of the respondent to provide the circular of CCT, the basis on which the impugned orders were passed before passing of the orders. It is settled law that any information/ documents/circulars relied upon by the Authorities must be made known to the Assessees while demand is made based on such material. The impugned orders passed are in violation of the principles of natural justice. On this ground alone, the orders impugned requires to be set aside. [v] The Commissioner has no power to issue circular No.09/17-18 dated 9.10.2017 which is mainly based on the Judgment of the Hon ble Apex Court in the case of M.K. AGRO TECH supra. Further, the CCT cannot direct the Authorities to levy penalty and interest as per the levies existed at that point of time for the relevant years of assessment/reassessment in view of the ratio of the Judgment of the Hon ble Apex Court.
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Court or any other court whether before or after the commencement of KGST Act, any order, assessment or reassessment or any action may be made notwithstanding the repeal of the KVAT Act. The proceedings relates to the tax period April 2015 to January 2017, much prior to the KGST Act coming into force. Proceedings were pending under the KVAT Act relating to these tax periods. Hence, claim of refund with interest by the respondent is saved under Section 173 of the KGST Act. Even otherwise, the said repeal of KVAT Act shall not invalidate the demand/ recovery of refund made to the petitioner by virtue of the order of this Court in Writ Petition Nos.110509-525/2015, whereby the refund was ordered subject to the petitioner filing indemnity bond and subject to the result of the Judgment of the Hon ble Apex Court in the case of M.K. AGRO TECH supra. The order impugned is based on the Judgment of the Hon ble Apex Court dated 22.09.2017 which is the law of the land, binding on the Courts and th
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ioner would not be relevant since the respondent has acted upon the Judgment of the Hon ble Apex Court in the case of M.K. AGRO TECH supra, which is binding on the authority as well as the Assesse. [iii] The Assessee placing reliance on the Judgment of M.K. AGRO TECH supra, sought for refund of input tax credit, strangely now canvassing arguments that the said Judgment is not applicable to the facts of the present case. [iv] Issuance of notice under Section 42 of the KVAT Act was only for the purpose of information. Further, though notice was issued under Section 69][1] of the KVAT Act, orders are passed under Section 10[5] read with Section 69[1] of the KVAT Act which was the provision invoked at the time of passing of the refund order. Even assuming there is wrong quoting of a provision, that would not invalidate the order. Section 10[5] of the KVAT Act empowers the respondent to proceed with the demand/recovery of the refund amount which was invoked while granting the refund. 8. Hea
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r (d) affect any tax, surcharge, penalty, fine, interest as are due or may become due or any forfeiture or punishment incurred or inflicted in respect of any offence or violation committed against the provisions of the repealed Acts; or (e) affect any investigation, inquiry, verification (including scrutiny and audit), assessment proceedings, adjudication and any other legal proceedings or recovery of arrears or remedy in respect of any such tax, surcharge, penalty, fine, interest, right, privilege, obligation, liability, forfeiture or punishment, as aforesaid, and any such investigation, inquiry, verification (including scrutiny and audit), assessment proceedings, adjudication and other legal proceedings or recovery of arrears or remedy may be instituted, continued or enforced, and any such tax, surcharge, penalty, fine, interest, forfeiture or punishment may be levied or imposed as if these Acts had not been so repealed; or (f) affect any proceedings including that relating to an app
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miting the time within which any action may be taken or any order, assessment or re-assessment may be made shall apply to an assessment or re- assessment made on the assessee or any person,- (i) in consequence of, or to give effect to, any finding, direction or order made under any provision of the relevant repealed Acts or any judgement, or order made by the Supreme Court, High Court or any other court whether before or after the commencement of this Act; (ii) to rectify any error on account of the assessment of such assessee or person under this Act, instead of under the relevant enactment, provided such assessment or re- assessment under the repealed Acts is made within the time specified in such repealed Acts. (4) The repeal of the Acts referred to in section 173 shall not be held to prejudice or affect the general application of section 6 of the Karnataka General Clauses Act, 1899 (Karnataka Act III of 1899) with regard to the effect of repeal. 11. In terms of Section 174(1)(f), i
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tion 35 of the KVAT Act, there is a deemed assessment under Section 38(1) of the KVAT Act. Thus on the returns filed by the assessee under Section 35 of the Act, refund was claimed on the ground that the input tax deductable by the dealer exceeds the output tax payable by him mainly relying on the Division Bench Judgment of this Court in M.K. AGROTECH s case supra. Refund claimed or the adjustments sought by the dealer not being responded, petitioner approached this Court in W.P.No.110509-525/2014 whereby this court considered the arguments of the parties and placing reliance on the Judgment of this court in STRP 774-794/2013 M.K. AGROTECH s case supra, passed the order which reads thus: 3. It is not in dispute and indeed it is submitted by the learned AGA that the matter is covered by the decision of Division Bench dated 17.07.2014 in STRP Nos.774-794 of 2013. However, it is submitted by him that Special Leave Petitions have been preferred by the State against the said judgment and th
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the same, if not otherwise found disentitled. In case the tax is refunded, as ordered, respondents are at liberty to obtain indemnity bond from the petitioner to the extent of amount refunded. It is also ordered that refund shall be made within a period of two weeks from the date of receipt of a copy of this order and from the date the petitioner furnishes indemnity bond, whichever is later. It is made clear that refund shall be subject to result of Special Leave Petitions pending in S.L.P. (Civil) Nos.576-596 of 2014. (emphasis supplied) 13. Thus it is made clear that refund shall be subject to result of Special Leave Petition pending in SLP (CIVIL) Nos. 576-596/2014. The Judgment of M.K. AGROTECH s case supra was reversed by the Hon ble Apex Court in Civil Appeal Nos.15049-69/2017 by its Judgment dated 22.9.2017. It is based on the said Judgment, proceedings are initiated by the respondent- authorities to demand/recover the refunded amount pursuant to the directions issued by this C
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.7.2017 would not affect the proceedings initiated by the Authorities in view of Section 174(1)(f) and (3) of KGST Act. 15. It is true that ordinarily no rectification is allowable based on the subsequent judgment passed by the High Court or the Apex Court, but in the peculiar facts and circumstances of the case when the petitioner has approached this court seeking refund of the amount referring to the Judgment of the Division Bench in M.K. AGROTECH s case supra and obtained an order, it is obligatory on the part of the petitioner to obey the orders of this court. However, the conduct of the petitioner turning around and assailing the proceedings initiated by the respondent-authorities to demand/recover the refund amount cannot be appreciated. Insisting for the notification to be published in terms of Section 174(2) of the KGST Act, the assessee cannot deviate from the undertaking given by filing indemnity bonds before the authorities while getting the refund orders. 16. Section 69(1)
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ction 10(5) r/w Section 69(1) of the Act cannot be exercised/invoked by the prescribed authority to withdraw the refund/ demand/initiate proceedings for recovery of refunded amount. Section 10(5) provides for refund or adjustment of the excess amount whereunder input tax deductable by the dealer exceeds the output tax. An order of recovery/demand of refunded amount has to be passed pursuant to the disposal of the appeal before the Hon ble Apex Court as ordered by this court while directing the respondent-authorities to refund the amount. Hence, respondent-authorities demanding the refund amount cannot be found fault with or it cannot be held that proceedings initiated by the prescribed authority under Section 10(5) r/w Section 69(1) is not valid. 17. In view of the submissions made by the learned counsel for the revenue it is clear that Annexure-C notice issued under section 42 of the KVAT Act is only for the purpose of information to the assessee and has no legal force and the same ca
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of Hon ble Apex Court. 19. It is trite law that penalty is not automatic, while imposing penalty, it is mandatory to provide an opportunity of hearing to the dealer but in the batch of present cases, no such penalty is levied by the prescribed authority. 20. As regards levy of interest, it is apt to refer to the judgment of the Constitution Bench of the Hon ble Apex Court in the case of J.K.SYNTHETICS LTD. -VS- COMMERCIAL TAXES OFFICER reported in (1994) 94 STC 422 whereby the Hon ble Apex Court has observed thus: Before we proceed further we must emphasise that penalty provisions in a statute have to be strictly construed and that is why we have pointed out earlier that the considerations which may weigh with the authority as well as the Court in construing penal provisions would be different from those which would weigh in construing a provision providing for payment of interest on unpaid amount of tax which ought to have been paid. Section 3, read with Section 5 of the Act, is the c
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hen proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same. But it must also be realised that provision by which the authority is empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage interest can be levi
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ents of this court in M/s M.K. AGROTECH s case supra applying the principles enunciated therein, net tax was computed and refund was claimed before this court, on the submissions made by the revenue that the matter is subjudiced before the Hon ble Apex Court, refund order was directed to be made subject to the result of the decision of the Hon ble Apex Court. Had no refund was made, the tax amount would have been utilized by the revenue. In other words, there is a delay caused in making the payment of legitimate taxes to the department. However, levy of interest under Section 36 shall be subject to hearing in the peculiar circumstances of the case on hand. It is true that interest would have been attracted if there is any omission on the part of the dealer if no output tax paid or short paid or higher input tax claimed. The prescribed authority ought to have examined this aspect of the matter in providing an opportunity of hearing to the petitioner. It is strange to observe that the de
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compensatory in nature but the same requires an opportunity to the petitioner to put-forth his reasons or explanation in as much as quantification is concerned in the facts and circumstances of the present case. Reasonable opportunity is quintessential as much as levying penalty. Hence Commissioner issuing circular instructions though for the smooth functioning or administration of the department, no instructions to levy penalty or interest automatically, could be issued though the order of the Hon ble Apex Court on merits of the case is in favour of the revenue. On this point the circular issued by the Commissioner dated 9.10.2017 has to be read down. Levy of penalty and interest shall be subject to providing reasonable opportunity of hearing to the assessee in the circumstances of the case though ordinarily interest is automatic. 23. Indeed, once indemnity bond is furnished, the payment of tax refunded is mandatory and the same cannot be assailed by the petitioner. Hence, confirming
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