Bharath Earth Movers Ltd. vs State of Karnataka

Jayant M. Patel, J.—1. The petitioner-assessee has preferred the present petitions by raising the following substantial questions of law:

"1. Whether on the facts and in the circumstances of the case, the Karnataka Appellate Tribunal was right in holding that the petitioner was not entitled to applicability of the instructions issued by the Commissioner of Commercial Taxes in paragraph (14) of Circular No. 13/2006-07 dated 26-6-2006, which is binding on the DCCT, and accordingly, to have passed the impugned order?

Whether on the facts and in the circumstances of the case of the petitioner the Tribunal was right in having upheld the levy of penalty under section 72(2) and interest under section 36 of KVAT Act by the DCCT (Audit-33), for the 23 tax periods from December 2005 to March 2008 in re-assessment order passed under Section 39(1) of the KVAT Act?

Whether on the facts and in the circumstances of the case, Tribunal was right in not following the order passed by another Bench of the Tribunal on the same issue and relied upon on behalf of the petitioner?"

We have heard Mr. Thirumalesh, learned Counsel appearing for the petitioner.

We may record that in order to find out as to whether the act of the petitioner would fall in the category of ''unintentional act or not'', the Tribunal at paragraphs-13 to 16 has observed thus:

"13. On the facts in these Appeals, all the factors requiring partial rebating under Section 17 read with Section 11(a)(5) and 11(a)(6) of the Act exist in all the tax periods of the year. There were transfers of goods other than by sale to other states(stock transfers) and purchases of petroleum products including furnace oil in all the tax periods earlier to December 2006, the first month of Appeal and subsequently in all the tax periods continuously. The factors which could cause confusion in using the formula prescribed under Rule 131 do not exist in these appeals. The appellant has not demonstrated the existence of any such factors or confusions in the use of the said formula. The Prescribed Authority clearly states that the Appellant has claimed input tax credit at 12.5% in the case of furnace oil or other petroleum products used for manufacture of finished goods; that the Appellant has not maintained the classification of purchases of furnace oil or other petroleum products and that in the absence of such classified purchases 10% of the total of 12.5% local purchases were presumed as purchases of petroleum products. Therefore the contention that the Appellant maintains books of accounts accounting for each and every transaction of purchase and procurement, use in the manufacture and sale and stock transfers of the manufactured goods, conforming to the requirements prescribed in Section 31 of the Act is contrary to facts. The Prescribed Authority also notes that the Deputy Commissioner of Commercial Taxes (Vigilance), who has inspected the books of accounts of the Appellant on 3 different dates has found that the dealer has not applied the restrictions of Section 11(a)(5) and Section 11 while claiming the input tax credit with respect to purchases utilized for stock transfers outside the State and on purchases of petroleum products which include furnace oil in entirety. It is the finding of the Prescribed Authority that the Appellant has not applied the restrictions of Section 11(a)(5) and Section 11(a)(6) read with Section 14 and Section 17 of the Act relating to the claim of input tax in claiming input tax credit.

The Appellant has tried to establish that non-application of the formula prescribed under Rule 131 to calculate non-deductable input tax in not deliberate by contending that the tax period April 2006, May 2006, January 2007, March 2007 and December 2007, the Prescribed Authority has allowed excess tax credit higher than that claimed in the returns. If this is true, the Prescribed Authority has exceeded his jurisdiction as under Section 39(1) he is vested with powers of reassessment if it is found that, for any tax period, tax admitted in the return is less than the correct tax liability and not otherwise. This is an issue which is not before us and the same is opened to revision by the jurisdictional authorities. Also, the Appellant has attempted to establish that non-application of the said formula and consequently short payment of tax is un-intentional and not deliberate by contending that for the tax periods of the year 2007-08 the Prescribed Authority has granted refund of Rs. 19,88,44,369/- vide his orders dated 24-2-2011. This contention is again contrary to facts and the same is very clear from the order of the Prescribed Authority under Section 69(1) dated 24-2-2011. In this order the net tax payable is determined at Rs. 99,13,78,006/- compared to the tax admitted and paid along with the returns of Rs. 99,05,74,089/- leaving a difference tax payable of Rs. 8,03,917/- under the CST Act and refundable amount of Rs. 19,88,44,369/-has arisen because the Appellant had paid a tax of Rs. 20.00 crores pursuant to the orders under Section 39(1) dated 30-6-2010, that the said re-assessment order was rectified vide orders dated 24-2-2011 after the Appellant filed Form-C declaration resulting in the said refund. Thus, the said refund has not occurred due to the promptness of the Appellant in payment of taxes in accordance with law and consequently the same does not establish any un-intentional or non-deliberate act of the Appellant.

The Circular (Supra) in Para (8) clearly states that un-intentional cases would be those in which the transactions necessitating partial rebating had not occurred either or they occur much after the purchase of inputs. In the case of the Appellant, the transactions necessitating partial rebating have occurred earlier, have been occurring in every tax period of purchase of inputs and disposal of outputs and therefore, this is not an un-intentional case as specified in the Circular. In Para (14) of the Circular, it is clearly stated that wherever it is proved that reversal of input tax deducted in excess of what is allowed under the provisions of the Act and Rules, is not an account of any deliberate act of not applying the apportionment formula in the month of inputs, no interest or penalty should be demanded from the dealer concerned. In these Appeals, the Appellant had failed to establish existence of any confusion in applying the formula. Though the transactions necessitating partial rebating exist in every tax period the Appellant has not bothered to attempt partial rebating by use of the formula prescribed under Rule 131. As stated in the Circular, excess claims of tax credits are a possibility when a cycle of transaction is less than 6 months or spread over in two to three months of one financial year and two or three months in another financial year. The Appellant does not categorically state as to what was his difficulty or confusion in using the formula prescribed under Rule 131. Rather, it is the case of the Appellant that in every case of partial rebating, the benefit of Para (14) of the Circular is available and therefore, penalty and interest should not be levied on it.

As explained above, there was no confusion with respect to the application of the formula on the facts in these Appeals and these Appeals do not fall under the unintentional cases referred to in the said Circular. Therefore, the benefit of Circular in its Para (14) is not available to the Appellant. Such being the case, the citations relied on by the Appellant in support of his contention are irrelevant to the facts of these Appeals. The First Appellate Authority has considered the contentions of the Appellant and has come to the categorical finding that the benefit of the Circular is not available to the Appellant. We find no reason to interfere with the impugned orders with respect to this issue. Hence, we answer Point No. 1 in the Affirmative."

The aforesaid shows that the first appellate Authority after examining the contentions of the petitioner herein who was appellant before the authority has come to the categorical finding that the benefit of circular is not available to the appellant therein. The Tribunal after re-appreciation of whole material has further reiterated the said finding of fact by concurring with the view of the first appellate authority.

As such, it is hardly required to be stated that the scope of judicial scrutiny in the present petitions is limited to a question of law and not a question of fact. The Tribunal, for the purpose of a question of fact is the ultimate fact finding authority. This Court may interfere with such finding of fact if it is a mixed question of law and fact or the view taken by the Tribunal on the basis of the facts available on record is an impossible view and not the possible view. If it is a possible view, this Court may not sit in an appeal over such finding of fact.

The learned Counsel for the petitioner attempted to contend that the Tribunal has gone by a particular paragraph of the Circular viz., paragraph-14 and has undertaken the scrutiny to the limited extent. It was also submitted by him that the Tribunal has not considered that the formula applied by the petitioner was found to be erroneously applied by the assessing authority. He therefore submitted that the Tribunal having not properly considered the aforesaid aspects, has recorded a finding of fact on the action being "not unintentional". The same would become a subject matter of judicial scrutiny in the present facts. He also contended that the petitioner, during the course of hearing, did rely upon the decision of the co-ordinate Bench of the Tribunal dated 28.11.2013 in case of Sri Srinivas, Partner, M/s. Shivaganga Food Oil Extractions v. State off Karnataka in STA Nos. 193 to 221/2012. But the Tribunal without dealing with the said aspects in detail has just brushed aside the said decision which is not permissible. He submitted that if there is a decision of the co-ordinate Bench of the Tribunal touching upon the issue, it was required for the Tribunal to consider the same. In his submission, if the view taken by the co-ordinate Bench of the Tribunal referred to hereinabove is considered, the impugned order of the Tribunal would be vulnerable and hence, it would be a case for interference.

We have considered the decision of the Tribunal in Sri Srinivas''s case (supra). The facts of the said case were that the first appellate authority found that there was no malafide intention on the part of the assessee and inspite of the same, the benefit of circular was not given fully. Hence, the Tribunal in the said case had taken the view that once it was found that there was no malafide intention on the part of the petitioner, it was required for extending the benefit and accordingly the order of penalty and interest was set aside by the Tribunal. Such is not the fact situation in the present case, inasmuch as the first appellate authority in the present matter, has found that the action was not unintentional and therefore, the benefit of circular would not be available to the assessee.

Under these circumstances, the decision upon which reliance has been placed by the learned Counsel when not applicable to the facts of the present case, it cannot be said that the Tribunal has committed an error while passing the impugned order in observing that the said decision is irrelevant to the facts of the present case.

The attempt to contend that the Tribunal has not properly considered the other clauses of the circular or that the Tribunal has not considered that the formula was applied by the petitioner but was found to be erroneous by the Assessing Officer, in our view, cannot be countenanced for two reasons: One is that the first appellate authority after having considered all aspects did find that the action was not unintentional. Further, the Tribunal in the impugned order has found that there was no confusion about applicability of the formula and it was clear. The reference made to non-applicability of formula is to imply that the correct formula was not applied. The question of non-applicability of correct formula could be said as unintentional if there is ambiguity in the applicability of such formula. When the formula was so clear as found by the Tribunal, and if it was not applied, the view taken by the Tribunal that the action was not unintentional cannot be said to be an impossible view, which may call for interference by us.

In view of the above, we find that the thrust of the petitions is to upset the finding of fact which is beyond the scope of judicial scrutiny in the present petitions. Hence, no questions of law as sought to be canvassed would arise for consideration in the present petitions.

Hence, the petitions are dismissed.