M/S Marico Industries Ltd. vs State Of Karnataka & Ors

K. V. Aravind, J

C.A.V

Heard Sri. M. Thirumalesh, learned counsel for the petitioner-Assessee and Sri. Aditya Vikram Bhat, learned Additional Government Advocate for respondent Nos.1 to 4- Revenue.

This Sales Tax Revision Petition is filed under Section 23(1) of the Karnataka Sales Tax Act, 1957 (for short, "the KST Act"), by the dealer, calling in question the order passed by the Karnataka Appellate Tribunal, Bengaluru (for short "the Tribunal"), in ST Rectification Application Nos.05 to 07/2018 (in STA Nos.304 to 306/ 2016), dated 24.06.2019.

The facts, in brief, are that the petitioner is a dealer registered under the Karnataka Sales Tax Act, 1957 (for short, "the KST Act"), and is engaged in the business of edible coconut oil and coconut hair oil under the brand names "Parachute", "Oil of Malabar", "Parachute Jasmine" and "Hair and Care". The assessment orders for the assessment years 2002-03, 2003-04 and 2004-05 were passed levying tax on the sale of coconut oil sold under brand names by applying Sl. No.17-A of Part 'C' of the Second Schedule at the rate of 20%.

3.1 The said Entry 17-A was challenged by the petitioner in Writ Petition No.28125/2002, contending that it was discriminatory and violative of Articles 14 and 16 of the Constitution of India. The writ petition was allowed and the amendment was struck down. However, the orders of assessment were not set aside in the said writ proceedings.

3.2 The order passed in the writ petition was challenged in Writ Appeal No.649/2006. The Division Bench, by order dated 15.12.2009, reported in 2011 (70) KLJ 93, set aside the order of the learned Single Judge and upheld the validity of the amendment. The Division Bench, however, directed the Revenue to consider the case of the assessee having regard to the distinction between sale of coconut oil as pure coconut oil and as hair oil.

3.3 Pursuant thereto, the petitioner filed an application dated 18.01.2010 seeking rectification of the assessment order in conformity with the judgment of the Division Bench. The said application was not rejected within a period of 60 days and, therefore, it is the case of the petitioner that the same stood deemed to have been allowed in terms of the proviso to Section 25-A(1) of the KST Act.

3.4 According to the petitioner, the refund ought to have been granted within 90 days from the deemed date. The deemed date is stated to be 22.03.2010 and the expiry of 90 days under Section 13-A of the KST Act is stated to be 22.06.2010. However, the adjudicating authority passed an order of rectification on 08.04.2010.

3.5 The said order of rectification was set aside by the Joint Commissioner of Commercial Taxes in exercise of powers under Section 21(2) of the KST Act, by order dated 14.01.2011, and the Assessing Authority was directed to pass fresh orders in the light of the judgment of the Division Bench of this Court. Pursuant thereto, the Assessing Authority passed a fresh order on 16.08.2011. It is stated that a refund notice was issued on 20.08.2011.

3.6 The fresh assessment order dated 16.08.2011, along with the refund order, was challenged before the Joint Commissioner of Commercial Taxes (Appeals), and the appeal came to be dismissed on 17.12.2011. Thereafter, a pay order was issued on 09.01.2012. It is further stated that the request for grant of interest was rejected on 17.07.2012. The said order rejecting the claim for interest was challenged before the Tribunal in STA Nos. 304, 305 and 306/2016. The Tribunal, by order dated 25.01.2018, rejected the appeals.

3.7 The petitioner thereafter filed ST Rectification Application Nos.05 to 07/2018 under Section 63(9)(a) of the Karnataka Value Added Tax Act, 2003 (for short, "the KVAT Act") before the Tribunal, which came to be rejected by order dated 24.06.2019.

Sri M. Thirumalesh, learned counsel appearing for the petitioner, submits that the assessment orders were passed levying tax at the rate of 20%. The assessment order for the assessment year 2002-03 is dated 20.08.2003, for the assessment year 2003-04 is dated 23.06.2004, and for the assessment year 2004-05 is dated 12.04.2005. It is submitted that the petitioner had challenged the constitutional validity of the amendment imposing tax at 20%. The learned Single Judge allowed the writ petition and quashed the amendment. However, in the appeal preferred by the State, the Division Bench set aside the order of the learned Single Judge while upholding the validity of the amendment, and clarified the legal position.

4.1 It is further submitted that the petitioner filed an application for rectification on 18.01.2010 seeking modification of the assessment orders in conformity with the judgment of the Division Bench of this Court. It is contended that, in terms of the second proviso to Section 25-A(1) of the KST Act, such an application cannot be rejected after the expiry of 60 days, and consequently, the same is deemed to have been allowed.

4.2 Learned counsel submits that, in terms of Section 13-A of the KST Act, if the refund is not granted within 90 days, the petitioner would be entitled to interest at the rate of 6% per annum for the period of delay. It is submitted that the rectification application is to be reckoned from 22.01.2010, the deemed date of rectification is 22.03.2010, and the period of 90 days expired on 22.06.2010. However, the refund was granted only on 09.01.2012. It is therefore contended that there is a delay of one year, six months and eighteen days, for which the petitioner is entitled to interest at the rate of 6% per annum.

4.3 Learned counsel for the petitioner submits that the order of rectification dated 08.04.2010 is contrary to the proviso to Section 25-A(1) of the KST Act. It is contended that, in the absence of a valid application, no rectification could have been undertaken. It is further submitted that the Suo Motu Revisional Authority has set aside the said order of rectification, holding the same to be without jurisdiction, and directed a fresh assessment. Pursuant to the order of the Suo Motu Revisional Authority, a fresh assessment was made, against which a refund came to be issued.

4.4 Learned counsel submits that the challenge to the said fresh assessment order, as well as the refund order, was rejected, however, in view of the proviso to Section 25-A(1) of the KST Act, all consequential proceedings subsequent to 08.04.2010 are rendered invalid and non est in the eye of law. It is further contended that, though the Tribunal has not denied the entitlement of the petitioner to interest, it has erred in computing the relevant period. Accordingly, it is submitted that the petitioner is entitled to interest on the refund for the delayed period from 22.06.2010 to 09.01.2012.

4.5 Learned counsel for the petitioner, in support of his submissions, has placed reliance on the judgment of a Co-ordinate Bench of this Court in Wipro Limited, Infotech Group, Belagola Industrial Area, Metagalli, Mysore v. State of Karnataka, reported in 2021 (99) KGST L.J. 701.

Per contra, learned AGA appearing for the respondents submits that the order of the Division Bench dated 15.12.2009 was communicated to the Assessing Authority on 23.03.2010. Taking note of the said judgment, the rectification order dated 08.04.2010 came to be passed. It is contended that the authorities are not precluded from passing more than one rectification order. Even assuming that the rectification application dated 18.01.2010 is deemed to have been allowed, the same would not disentitle the authorities from passing a subsequent rectification order in accordance with law.

5.1 It is further submitted that, by the revisional order dated 14.01.2011, the rectification order dated 08.04.2010 was set aside, with a direction to the Assessing Authority to pass a fresh assessment. Pursuant thereto, a fresh assessment order was passed and refund was issued. Learned AGA submits that the appeal challenging the fresh assessment order as well as the refund order came to be dismissed by the appellate authority by order dated 17.12.2011, and the said order has attained finality, as the same has not been challenged further.

5.2 It is further submitted that, while considering the challenge to the order rejecting the request for interest, the Tribunal, by its order dated 25.01.2018, rejected the appeals by holding that the relevant period is to be reckoned from 23.03.2010, i.e., the date on which the copy of the judgment of the Division Bench was made available to the Assessing Authority. It is therefore contended that the impugned order rejecting the rectification application by order dated 24.06.2019 is justified. It is also submitted that, in the absence of a challenge to the main order dated 25.01.2018, the order rejecting the rectification application cannot be independently assailed.

We have considered the submissions made by learned counsel for the parties and perused the appeal papers.

This petition was admitted, by order dated 12.07.2021, to consider the following substantial questions of law:

"i. Whether in the facts and circumstances of the case of the petitioner, the Tribunal did not commit serious error of law in having pronounced the decision as in paragraph 35 of the impugned order making an unlawful turnaround and departure from own findings of facts and law brought on record of paragraph 6 of the impugned order by which the rectification applications filed by the petitioner in ST Retfn. No.5-7/2018 were ordered for admission?

ii. Whether in the facts and circumstances of the case of the petitioner, the Tribunal did not commit a serious error of law in having pronounced decision that the petitioner did not make out sufficient grounds either factually or legally for interference with the judgment passed in STA. No.304-306/2016 it being diametrically opposite of the reiterated recitals of the Tribunal itself in all the preceding paragraphs of the impugned order?"

The Assessing Authority completed the assessments on 20.08.2003 for the assessment year 2002-03, on 23.06.2004 for the assessment year 2003-04, and on 12.04.2005 for the assessment year 2004-05. In the said assessments, tax at the rate of 20% was levied. The petitioner challenged Entry 17-A in Part 'C' of the Second Schedule to the KST Act by filing Writ Petition No.28125/2002. The learned Single Judge, while allowing the writ petition, declared the said entry as unconstitutional.

8.1 Aggrieved thereby, the State preferred Writ Appeal No.649/2006 before the Division Bench. The Division Bench, while upholding the constitutional validity of the said entry, held as under:

"7. Having seen the material produced before us and also considering that even a coconut oil manufactured by a particular industry cannot be sold without a brand name, it would be difficult for us to accept the arguments advanced by the learned Government Advocate to say that any coconut oil sold under a brand name either in sachet or bottle has to be treated as a toilet article. We refuse to accept the arguments of the Government Advocate to treat the coconut oil sold in a brand name either in sachet or bottle as a toilet article. By looking into the ingredients of the coconut oil sold by two different companies, it is clear it is only a pure coconut oil and neither meant as edible oil nor as hair oil. But the bottle produced by the respondent-assessee of Parachute company has got two brand names, one is sold as a pure coconut oil and another is a coconut hair oil. The ingredients of the hair oil sold under the name of Parachute has got a different ingredients than the one manufactured and sold by the same company as 100 per cent pure coconut oil. Considering these aspects, we are of the opinion that the learned judge has not taken into account distinction between the hair oil and edible oil. Since this aspect has not been considered, we are of the view the learned judge has committed an error in granting a relief to the assessee in declaring the amendment as unconstitutional in violative of article 14 of the Constitution of India.

Considering the facts and background of the amendment brought in, we are of the view that whenever coconut oil is manufactured and sold as hair oil, the same would attract tax at higher rate of 15 per cent and 20 per cent as per the amendment brought to the Karnataka Sales tax Act, and coconut oil sold as pure coconut oil, as a brand name would attract only four per cent as the same can be used as an edible oil not exclusively as a toilet articles. In view of this distinction, we allow this appeal."

8.2 The petitioner filed a rectification application dated 18.01.2010 seeking rectification of the aforesaid assessment orders in the light of the law declared by the Division Bench. The said applications were received in the office of the Deputy Commissioner of Commercial Taxes, Bangalore, on 22.01.2010. The application enclosed a copy of the judgment of the Division Bench as well as copies of the original assessment orders sought to be rectified.

8.3 The rectification of mistakes is governed by Section 25-A of the KST Act, which reads as under:

"25A. Rectification of mistakes.-(1) With a view to rectifying any mistake apparent from the record, the assessing authority, appellate authority or revising authority, may, at any time, within five years from the date of an order passed by it, amend such order:

Provided that an amendment which has the effect of enhancing an assessment or otherwise increasing the liability of the assessee shall not be made unless the assessing authority, appellate authority or revising authority, as the case may be, has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard.

Provided further that where an application is made by an assessee for rectification of any mistake in an order, as being apparent from the record and, such application has not been rejected by the assessing authority within sixty days from the date of receipt of the application, the order shall be deemed to have been amended rectifying such mistake.

(2) Where an order has been considered and decided in any proceedings by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.

(3) An order passed under sub-section (1), shall be deemed to be an order passed under the same provision of law under which the original order, the mistake in which was rectified, has been passed."

In view of the legal fiction engrafted in the second proviso, where an application made by the assessee for rectification is not rejected by the Assessing Authority within a period of 60 days from the date of its receipt, the order is deemed to have been amended so as to rectify the mistake.

8.4 In the present case, no order rejecting the rectification application has been passed. However, it is the contention of the State that the order of the Division Bench was made available to the Assessing Authority only on 23.03.2010 and, taking note of the same, a rectification order came to be passed on 08.04.2010. It is, however, not clear as to whether the said rectification order dated 08.04.2010 was passed pursuant to the rectification application dated 18.01.2010 or in exercise of suo motu powers.

8.5 The rectification order dated 08.04.2010 was subjected to revisional jurisdiction under Section 21(2) of the KST Act. By order dated 14.01.2011, the said rectification order was set aside, with a direction to the Assessing Authority to pass a fresh order in the light of the judgment of the Division Bench. In compliance with the said revisional order, a fresh assessment was made on 16.08.2011. It is also not in dispute that a refund notice was issued and the refund was granted.

8.6 The petitioner challenged the fresh assessment order as well as the refund order in appeal before the Joint Commissioner of Commercial Taxes (Appeals), and the said appeal came to be dismissed on 17.12.2011. Thereafter, a pay order was issued on 09.01.2012. The request for grant of interest on the delayed refund was rejected on 17.07.2012. The challenge to the said order culminated in dismissal of the appeal by the Tribunal by order dated 25.01.2018.

8.7 It is not in dispute that the fresh assessment order dated 16.08.2011, the revisional order dated 14.01.2011, and the appellate order dated 17.12.2011 have not been challenged and have thus attained finality. The Tribunal, while rejecting the appeal by order dated 25.01.2018, though accepted the petitioner's entitlement to interest, reckoned the relevant period from 23.03.2010, i.e., the date of receipt of the copy of the judgment of the Division Bench by the Assessing Authority. On the same reasoning, the rectification application has also been rejected, which is impugned in the present appeal.

The order of the Tribunal is not sustainable for more than one reason. The original assessments were completed in the years 2003, 2004 and 2005 for the assessment years 2002-03, 2003-04 and 2004-05, levying tax at a higher rate. The petitioner had challenged Entry 17-A in Part 'C' of the Second Schedule to the KST Act in Writ Petition No.28125/2002, wherein the said entry was initially quashed. However, the Division Bench, while setting aside the order of the learned Single Judge, upheld the constitutional validity of the said entry.

9.1 There is no dispute with regard to the petitioner's entitlement to refund in the light of the law declared by the Division Bench. The controversy is confined only to the delay and the period of such delay. Though the Tribunal has observed that there was a delay of a few days, it has erroneously reckoned the period from 23.03.2010, proceeding on the basis that the judgment of the Division Bench was brought to the notice of the Assessing Authority only on that date.

9.2 The said reasoning is clearly untenable. The petitioner had filed the rectification application dated 18.01.2010 enclosing a copy of the judgment of the Division Bench dated 15.12.2009, which was received by the Assessing Authority on 22.01.2010. Thus, it is evident that the Assessing Authority had knowledge of, and was in possession of, the judgment of the Division Bench as on 22.01.2010.

9.3 The rectification application dated 18.01.2010 was not rejected within the period of 60 days as stipulated under Section 25-A of the KST Act. In view of the second proviso to Section 25-A(1), the said application is deemed to have been allowed and the assessment orders stood amended by operation of law upon expiry of 60 days from 22.01.2010, i.e., the date of receipt of the application.

9.4 Though it may be open to the Assessing Authority to pass more than one rectification order, the same must be in conformity with the statutory provisions. Once the rectification application dated 18.01.2010 stood allowed by virtue of the legal fiction, and the deemed rectification had come into force, the question that arises is whether the Assessing Authority could pass another rectification order in derogation thereof. The answer must be in the negative.

9.5 It is not the case that the authorities were without remedy. However, so long as the deemed rectification remained in force, the rectification order dated 08.04.2010 is without jurisdiction. In this regard, this Court in Wipro Limited, Infotech Group, Belagola Industrial Area, Metagalli, Mysore (supra) has held as under:

"8. Admittedly, in the instant case, it is not in dispute that the Assessing Authority passed an order taking into account the original return instead of revised return on 31-5-2006, 28-8-2006 and 31-8-2006. The petitioner had filed the revised returns in Form 4 on 12-4-2006, 19-8-2006 and 30-5-2006. Therefore, in view of second proviso to Section 25-A of the Act, on expiry of sixty days, the revised return should have been deemed to have been accepted. However, after a period of sixty days, the Adjudicating Authority passed an order on 31- 10-2007, 21-1-2008 and 5-1-2008, which were per se without jurisdiction. The aforesaid aspect of the matter was neither considered by First Appellate Authority nor by the Tribunal. The Tribunal has decided the question of law erroneously, which arose for its consideration."

9.6 Applying the principles laid down in the aforesaid decision, and in view of the second proviso to Section 25-A of the KST Act, upon expiry of 60 days, the rectification application is deemed to have been allowed and the mistake stands rectified by operation of law. Any rectification order passed after the expiry of the said period is, therefore, per se without jurisdiction.

9.7 In the light of the aforesaid enunciation of law, we hold that the rectification order dated 08.04.2010 is without jurisdiction. Consequently, all subsequent proceedings, namely, the revisional order dated 14.01.2011, the fresh assessment order dated 16.08.2011, the refund notice dated 20.08.2011, and the appellate order dated 17.12.2011, cannot be sustained in the eye of law.

9.8 When the aforesaid orders are otherwise unsustainable in law, the mere fact that they have not been challenged would not operate as an impediment to the petitioner's claim for interest, the right to which has already accrued by operation of the second proviso to Section 25A(1) and Section 13-A of the KST Act. Orders passed without jurisdiction cannot defeat an accrued statutory right, unless such right is taken away or set aside in a manner known to law.

9.9 The deemed rectification arising out of the application dated 18.01.2010 continues to hold the field. The right that has accrued pursuant to such deemed rectification cannot be divested by subsequent proceedings which are themselves without jurisdiction. Moreover, none of the aforesaid orders dispute the petitioner's entitlement to refund in the light of the law declared by the Division Bench. The Tribunal, in its orders dated 25.01.2018 and 24.06.2019, has proceeded on an erroneous premise that the judgment of the Division Bench came to the notice of the Assessing Authority only on 23.03.2010, and that there was no delay if the period was reckoned from the said date for the purpose of determining the petitioner's entitlement to interest.

9.10 We find that the aforesaid observation and finding are contrary to the law and material on record. The rectification application dated 18.01.2010, enclosing a copy of the judgment of the Division Bench, bears the acknowledgment seal of the office of the Deputy Commissioner of Commercial Taxes dated 22.01.2010. Thus, it is evident that the Assessing Authority had knowledge of the judgment of the Division Bench as on 22.01.2010.

9.11 Be that as it may, by operation of law, the rectification application dated 18.01.2010 stood allowed upon expiry of the prescribed period, and the assessment orders stood deemed to have been rectified. Once such deemed rectification has come into force, any subsequent proceedings cannot divest the petitioner of the accrued right.

9.12 In the light of the above, we are of the considered view that the petitioner is entitled to interest under Section 13-A of the KST Act at the rate of 6% per annum for the period of delay of one year, six months and eighteen days. The said period is computed on the basis that the rectification application is to be reckoned from the date of its receipt, i.e., 22.01.2010. The period of 60 days, as contemplated under the second proviso to Section 25-A(1) of the KST Act, expired on 22.03.2010, and the further period of 90 days for grant of refund under Section 13-A KST Act expired on 22.06.2010.

In the light of the findings recorded herein above, we pass the following:

O R D E R

(i) Sales Tax Revision Petition No.3/2020 is allowed.

(ii) The order in STA Rectification Nos.05 to 07/2018 dated 24.06.2019 passed by Karnataka Appellate Tribunal at Bangalore is hereby set aside.

(iii) The questions admitted are answered in favour of the petitioner-Assessee and against the Revenue.

(iv) The petitioner is entitled to interest under Section 13-A of the Karnataka Sales Tax Act, 1957, at the rate of 6% per annum for the period of 1 year, 6 months and 18 days.

(v) No orders as to costs.