M/s. United Distilleries vs State of Kerala

K.M. Joseph, J.—Revision Petitioner challenges Annexure-E order passed by the Kerala Sales Tax Appellate Tribunal, Additional Bench, Kozhikode (hereinafter referred to as the tribunal) which is impugned in this revision filed u/s 41 of the Kerala General Sales Tax Act. According to the petitioner, petitioner is the licensee under the Kerala Abkari Act for the manufacture etc. of Indian made foreign liquor. It is the further case of the petitioner that under the law in force, the whole of the liquor so produced can be sold within the State of Kerala only to the Kerala State Beverages Corporation (for short, KSBC). KSBC would pay the duty. Under the scheme of the Act, according to the petitioner, it was not liable to include the excise duty. Petitioner was made liable to pay turnover tax with effect from 1.7.1987. By Judgment in Kerala Distilleries and Allied Products Ltd. V. Assistant Commissioner (Assessment) (I), Commercial Tax, Special Circle Palakkad (117 STC 553), this Court held that inclusion of excise duty turnover is unconstitutional and void, treating it as privilege price. Ultimately, the matter culminated in the Judgment of the Apex Court in State of Kerala and Others Vs. Maharashtra Distilleries Ltd. and Others, Therein, the Apex Court declared that the manufacturers are liable to include in their turnover the amount of duty paid by KSBC with effect from 5.1.1999 and to pay the turnover tax accordingly. It is the further case of the petitioner that pursuant to the same, the petitioner included excise duty in the turnover and started payment of turnover tax. In the meantime, section 23B was introduced providing for settlement of outstanding arrears. Petitioner submitted application for payment of arrears of tax and interest as per the Amnesty scheme on 31.12.2008 on the basis of the records. It is their further case that there was some inadvertent errors and the petitioner submitted revised application. By Annexure-A proceedings, the amount payable by the petitioner was determined as Rs. 1,11,02,214/- to be paid in four instalments. Annexure-B purports to be the notice issued u/s 35 of the KGST Act. Referring to Annexure-A order and noting that it is learnt that the actual arrear position as on the date of opting Amnesty Scheme is Rs. 4,83,52,764/- as stated in the notice, the Deputy Commissioner, Commercial Taxes, Kozhikode proposed to invoke the powers u/s 35 of the KGST Act. Annexure-C is the order passed u/s 35. Rejecting the contention that the power is not available u/s 35 and noting that the petitioner has no dispute regarding section 55C of the KGST Act which provides that payment shall be appropriated first towards interest and only the balance be appropriated towards principal, it was found that in the calculation made by the assessing authority, principles of section 55C was not applied. It was noted that the only argument of the petitioner was that it was a settled matter and it could not be revised. But, this argument did not weigh with the authority. The contention regarding liability to pay turnover tax on the excise duty element was not gone into, as it could not be done in the proceedings. The settlement was found to be based on incorrect figure which was found prejudicial to the Revenue. The Tribunal in appeal has affirmed the order passed by the Deputy Commissioner. It is against the same that the revision is filed.

We heard the learned counsel for the petitioner and the learned Spl. Government Pleader (Taxes).

Learned counsel for the petitioner submits that the Deputy Commissioner has no power to reopen the matter u/s 35 of the KGST Act. It is submitted that the petitioner had paid a huge sum of over rupee one crore and all the others were fighting cases. It is also submitted that it is after one year of the petitioner availing the benefit of Amnesty Scheme that power u/s 35 of the KGST Act was invoked by the Deputy Commissioner. It is further submitted that the decision of this Court in State of Kerala Vs. Kaycee Distilleries, has not become final, as the matter is pending before the Apex Court. It is contended that finding about section 55C of the KGST Act is not correct. Learned Spl. Government Pleader would support the order of the Tribunal.

By Annexure-A dated 5-3-2009 on the basis of the application dated 31-12-2008 filed by the petitioner seeking settlement of the outstanding arrears u/s 23B of the KGST Act, the petitioner was permitted to settle the arrears and it was directed to remit Rs. 1,11,02,214/- in four instalments. By Annexure-B notice the Deputy Commissioner took the view that the actual arrear position of the petitioner as on the date of opting for Amnesty Scheme was Rs. 4,83,52,764/-. He noted that the settlement of the arrears by the Assistant Commissioner was incorrect and it is prejudicial to state revenue. The contention of the petitioner is that once a person was allowed to settle the arrears under the Amnesty Scheme, it was immune from any sort of reopening and the Deputy Commissioner has no power u/s 35 of the KGST Act to reopen. Section 35 of the KGST Act reads as follows:-

Powers of revision of the Deputy Commissioner suo motu-

(1) The Deputy Commissioner may, of his own motion, call for and examine any order passed or proceedings recorded under this Act by any officer or authority subordinate to him other than an Appellate Assistant Commissioner which in its opinion is prejudicial to revenue and may make such enquiry or cause such enquiry to be made and, subject to the provisions of this act, may pass such order thereon as he thinks fit.

(2) The Deputy Commissioner shall not pass any order under sub-section (1) if,

(a) the time for appeal against the order has not expired;

(b) the order has been made the subject of an appeal to the Appellate Assistant Commissioner or the Appellate Tribunal or of a revision in the High Court; or

(c) more than four years have expired after the passing of the order referred to therein.

2A. Notwithstanding anything contained in sub-section (2), the Deputy Commissioner may pass an order under sub-section (1 on any point which has not been decided in an appeal or revision referred to in clause (b) of sub-section (2), before the expiry of a period of one year from the date of the order in such appeal or revision or before the expiry of the period of four years referred to in clause (c) of that sub-section, whichever is later.

(3) Not order under this Section adversely affecting a person shall be passed unless that person has had a reasonable opportunity of being heard.

Section 23B reads as follows:-

23B. Reduction of arrears in certain cases--(1) Notwithstanding anything contained in this Act, or in any judgment, decree or order of any court, tribunal or appellate authority, an assessee who is in arrears of tax or any other amount due under the Act relating to the period ending on 31st March, 2005, may opt for settling the arrears by availing reduction at the following rates:

a) in the case of demands relating to the periods up to and including 31st March, 1991, a reduction of twenty five per cent for the tax amount and complete reduction of the interest on the tax amount and for the amount of penalty and interest thereon.

b) in the case of demands relating to the period from 1st April, 1991 to 31st March, 1996, a complete reduction of the interest on the tax amount, and for the amount of penalty and interest thereon.

c) in the case of demands relating to the period from 1st April, 1996 to 31st March, 2000, a reduction of ninety five per cent of the interest on the tax amount and for the amount of penalty and interest thereon.

d) in the case of demands relating to the period from 1st April, 2000 to 31st March, 2005, a reduction of ninety per cent of the interest on the tax amount and for the amount of penalty and interest thereon; and

e) in cases where principal amount has already been remitted prior to coming into force of section 55C of the Act, a reduction of ninety per cent of the interest amount.

2) Notwithstanding anything contained in the Kerala Revenue Recovery Act, 1968, reduction of arrears under sub-section (1) shall be applicable to those cases in which revenue recovery proceedings have been initiated and the assessing authorities shall have the power to collect such amounts on settlement under subsection (1) and where the amount is settled under sub-section (1) the assessing authorities shall withdraw the revenue recovery proceedings against such dealers which will then be binding on the revenue authorities and such dealers shall not be liable for payment of any collection charges.

3) A dealer who wishes to opt for payment of arrears under sub-section (1) shall make an application to the assessing authority in the prescribed form before 30th September, 2008, or on such date as may be notified by the Government.

4) On receipt of an application under subsection (3), the assessing authority shall workout the actual amount of tax and other amounts due from the dealer under sub-section (1) and shall intimate the amount to the dealer, and thereupon the dealer shall remit twenty five per cent of the amount within 15 days of receipt of the intimation, and the balance amount in three equal monthly instalments starting from the subsequent month.

5) If the dealer commits any default in payment of the instalments, the reduction granted under sub-section (1) is liable to be revoked.

6) No action under sub-section (5) shall be taken without giving notice to the dealer.

7) If the amount settled under this provision has been a subject matter of appeal or revision, such appeal and revision may be continued and if the final orders of such appeal or revision results in the reduction of tax payable under this Act, the amount, so reduced shall be refunded. But if, as the result of such appeal or revision, the tax payable under this Act is enhanced, the dealer shall pay such enhanced amount, with interest thereon, in accordance with the provisions of this Act.

Section 55C reads as follows:-

55C. Appropriation of payment: - (1) Where any tax or any other amount due or demanded under the Act is paid by any dealer or other person, the payments so made shall be appropriated first towards interest accrued on such tax or other amount under sub-section (3) of section 23 on such date of payment and the balance available shall be appropriated towards principal outstanding, notwithstanding any request to the contrary by the dealer or any person making such payments.

(2) Notwithstanding anything contained in sub-section (1) where any dealer or other person has paid any amount towards tax or any other amount and such payment has been set off towards the principal amount prior to the coming into effect of this section, no re-computation of such payment shall be made under sub-section (1).

The learned Spl. Government Pleader pointed out that in the order granting the benefit of Amnesty Scheme it is stated that in case any information furnished is found to be false, the permission is liable to be revoked. We need not proceed on the basis of the said provision in the Annexure-A, as we are concerned in this case with invoking the power u/s 35 of the KGST Act. Section 35 enables the Deputy Commissioner to reopen any order passed by any officer or authority subordinate to him other than an Appellate Assistant Commissioner, which in his opinion is prejudicial to revenue, and to make such enquiry or cause such enquiry to be made and to pass such order thereon as he thinks fit. Section 23B of the KGST Act was introduced with an intention to reduce the arrears. It provides for the manner in which and the extent to which the arrear has to be reduced and payment is to be made. In substance, certain relief is given in respect of interest and penalty. In respect of certain periods relief is also given in respect of tax arrears. Section 55C of the KGST Act provides that when amounts are paid by the dealer or other person the payment so made shall be appropriated first towards interest accrued on such tax or other amount under subsection (3) of section 23 and the balance available shall be appropriated towards principal outstanding notwithstanding any request to the contrary by the dealer or any person making such payments.

A perusal of Annexure-B notice would go to show that for the years 2001-02, 2002-03 and 2003-04 the figure actually would be Rs. 4,83,52,764/-. This is on the basis of calculation of amount due by way of turnover tax, interest, KGST, amount due as Central Sales-tax and also interest. There has been no dispute before the Tribunal and also before us that in computing the figures by the officer, when he issued Annexure-A, section 55C of the KGST Act was not complied with. This means that the amount which was paid by the petitioner was not adjusted towards the interest payable. Secondly, it is also clear that the petitioner had not included the excise element in the computation of the turnover tax. There is no dispute that after the judgment of the Apex Court, though rendered in 2005 in Maharashtra Distilleries case w.e.f. 5-1-1999 excise duty was to be added to the amount as mentioned in Annexure-B notice.

According to the petitioner, the excise duty was included in the amount for calculation of the turnover tax but the interest, which was payable in law, was not included. As far as the question of interest is concerned, a Bench of this Court in a decision reported in State of Kerala Vs. Kaycee Distilleries, has held that interest is payable for delayed payment of the tax. The correct amount of tax payable would necessarily depend upon the party including the excise duty element. When the excise duty element is included, the amount would necessarily go up and party would be liable to pay interest for not having included the excise duty element. When the interest portion goes up, any payment made shall be appropriated first towards interest accrued u/s 55C of the KGST Act. Thus, the amount payable under the Amnesty scheme would proportionately go up. It is in the circumstances, Annexure-B notice was issued and after giving an opportunity to the petitioner Annexure-C order followed by Annexure-D rectification order was passed.

We are unable to accept the contention of the petitioner that an order granting Amnesty Scheme cannot be corrected in proceedings u/s 35 of the KGST Act. The Deputy Commissioner has authority to correct an order passed by any officer subordinate to him except the appellate authority. Section 23B of the KGST Act is a special provision intended to give benefit both to the Revenue and assesses. Revenue is intended to be benefited by collection of as much tax as could be collected by payment. The assessee is benefited by offering considerable reduction in the amount of interest, penalty and even tax. We cannot for a moment hold that section 55C of the KGST Act will not apply. It is pointed out on behalf of the petitioner that section 23B of the KGST Act starts with a non obstinate clause and therefore, section 55C of the KGST Act will not apply.

We are not impressed at all by that argument. Purport of the non-obstinate clause is that the assessee is not compelled to pay full tax, penalty and interest and is given considerable benefit, in that, it is reduced to the extent it is provided therein. Therefore, even if there is any provision in the Act under which they would be liable to pay the full amount that liability would be limited to the amount which would be determined u/s 23B of the KGST Act. This does not, however, prevent the application of section 55C of the KGST Act. As correctly pointed out by the Tribunal, in clause (e) of sub-section (1) of section 23B it is provided as follows:-

in cases where principal amount has already been remitted prior to coming into force of section 55C of the Act, a reduction of ninety per cent. of the interest amount.

This itself is an indication to show that section 55C of the KGST Act otherwise applies in the computation of the amount payable under the Amnesty Scheme. Admittedly, section 55C was not applied in the case of the petitioner in the computation of the amount, when Annexure-A was issued. A perusal of Annexure-B would show that a very large amount would be payable by the petitioner under the Amnesty Scheme, if the law had been correctly applied. The resultant position was that if Annexure-A order was allowed to stand, this would have caused considerable prejudice to the Revenue. As we have already noted u/s 23B of the KGST Act, the objective of the legislature was to garner as much as revenue as possible from willing assesses who were prepared to pay the amount as provided in section 23B of the KGST Act. When this was the objective and when the same was found frustrated by passing of Annexure-A we take the view that it was a case where the Deputy Commissioner was within his authority to invoke his power u/s 35 of the KGST Act. In this regard, we derive considerable support from a judgment of a Division Bench of this Court reported in Joy Alukkas Traders Vs. State of Kerala wherein the court was dealing with the case where the petitioner was permitted to compound the matter and it was sought to be reopened suo motu by the Deputy Commissioner u/s 35 of the KGST Act. The Court inter alia held as follows:-

The next contention raised by counsel for the petitioner is that the mistake, if any, is in the approval granted by the assessing officer in Form No. 21A permitting the payment of tax at compounded rate only for two branches and simultaneously, permitting the assessee to pay tax u/s 5(1) for the head office and another branch and so much so, the order prejudicial to the interest of the revenue requiring correction through revision u/s 35 is Form No. 21A. According to counsel, since the Deputy Commissioner has not revised the said order, he has no jurisdiction to revise the regular assessment made in consonance with the compounding scheme approved by the assessing officer. The Government Pleader, on the other hand, contended that Form No. 21A is only an approval granted on application filed under Rule 30 and in such case, the dealer is permitted to file return under sub-clause (5) of Rule 30 in Form No. 9 on which the assessment has to be made by the assessing officer u/s 17(1) or 17(3) of the Act. It is clear from Form No. 21A and Form No. 22 issued under Rule 30 that the payment of tax based on the approval and the demand notice are only provisional and the same has to find acceptance in a regular assessment. In other words, even if there is a mistake or omission in the approval granted by the assessing officer, it is within his powers to modify such order and demand the tax escaped under the compounding scheme in regular assessment or later by revising assessment u/s 19(1). The power of the Deputy Commissioner u/s 35, of course, can be exercised in respect of any order passed by the assessing officer which is prejudicial to the interest of the revenue. Therefore, the approval granted in Form No. 21A and the demand notice issued under Form No. 22 also could be corrected by initiating proceedings u/s 35 if the Deputy Commissioner is of the view that approval granted and the demand tax are detrimental to the interest of the revenue. However, failure or omission on the part of the Deputy Commissioner in interfering at that stage does not bar him from scrutinising the correctness of the regular assessment completed u/s 17(3). We have already found that the monthly payment of tax based on the approval for compounding granted by the assessing officer in Form No. 21A and the demand notice issued under Form No. 22 are only provisional and the same should find acceptance in a regular assessment. When a regular assessment is completed by the assessing officer, his earlier orders issued in Form No. 21A and Form No. 22 for payment of tax under compounding scheme do not survive any longer because the final assessment supersedes all those proceedings. No purpose will be served by modifying those orders which have lost significance once assessments are made. Therefore, we are of the view that the Deputy Commissioner is competent to revise an assessment prejudicial to the interest of the revenue, no matter, such assessment is completed based on an erroneous compounding order passed by the Officer in Form No. 21A which was not cancelled or revised by the Deputy Commissioner. There is no dispute that the order issued by the Deputy Commissioner u/s 35 is within the time for revision of regular assessment passed by the assessing officer u/s 17(3). So much so, the Tribunal rightly rejected the assessee''s challenge against the order of the Deputy Commissioner on the ground of limitation.

In fact we may notice that the contention taken by the assessee in the said case was that there was a binding contract in the case of compounding. In this case there is no such contention that by availing of the benefit of Amnesty Scheme there is any contract and therefore, the department cannot set aside the same. It is inconceivable that an officer whether unintentionally or intentionally can hold to ransom the revenue by passing a completely illegal or erroneous order. This we think would be effect of accepting the contention of the petitioner that there is no authority for the Deputy Commissioner to step in when an errant officer for whatever reason passes an order which is found to be otherwise prejudicial to the interest of the revenue. We think that it was indeed well within the power of the Deputy Commissioner to interfere and prevent prejudice being caused to the revenue.

An attempt was made by the learned counsel for the petitioner to draw support from an unreported judgment in ST Rev. 247 of 2010. In view of the support which is sought to be drawn from the same judgment, we extract the full judgment:

These connected revision cases are filed by the State challenging the orders of the Tribunal cancelling interest levied u/s 23(3A) of the KGST Act. The revision cases filed are for the years 1999-2000 to 2003-2004. Adv. Shri Raju Joseph who took notice for the respondent today produced before us proceedings dated 20-9-2008 whereby the Department has accepted Amnesty benefits sought for by the respondent and allowed settlement of arrears of tax, interest and penalty for the assessment years 1998-1999 to 2004-2005. Shri Vinod Chandran, Special Government Pleader appearing for the State submitted that the Amnesty benefit granted is subject to result of litigations, which includes revision cases pending in this Court. However, it is seen that revision cases are filed with an inordinate delay of over three years on 16-11-2010, whereas the Amnesty benefit was granted way back in 2008 on 20-9-2008. We do not think the State can file revision petitions after allowing settlement of liability under Amnesty scheme and after inducing the party to settle liability at the reduced rate.

Therefore, we do not find any merit in the delay condonation petitions more so when the demands stand settled more than two years back under Amnesty scheme. Therefore, all the delay condonation petitions are dismissed and consequently, the revision cases are also dismissed.

As is self evident from judgment it was a case where benefit of Amnesty Scheme has been availed. The court noted that the revisions filed were with inordinate delay of 3 years on 16-11-2010 whereas the Amnesty benefit was granted in 2008. It is therefore the court proceeded to observe that the State cannot be permitted to file revisions after allowing settlement of the liability under the Amnesty Scheme and after inducing the party to settle the liability at the reduced rate. We further notice that it was a case where the court did not find merit in delay condonation applications. In this case, on the other hand, the Deputy Commissioner has taken proceedings u/s 35 of the KGST Act. It is the said proceeding which was challenged before the tribunal by the petitioner and we are considering the revision petition filed by the petitioner. Therefore, we notice that no principle has been laid down by the Division Bench in such case that once Amnesty Scheme has been availed it is invulnerable to correction as provided under the Act as observed by us earlier.

In State of Kerala Vs. Kaycee Distilleries, a Division Bench of this Court had occasion to consider the effect of section 23(3) and 23(3A) of the KGST Act. We may refer to paragraph 4 of the above decision:-

It is obvious from the judgment of the Supreme Court and the orders dismissing clarification petition that the respondent was liable to pay turnover tax on the excise duty remitted by the Beverages Corporation on the sale of liquor made by respondent from 5.1.1999 onwards. This position is not contested by the respondent. However, since turnover tax on excise duty was not paid by respondent along with the returns filed, the Assessing Officer, while making assessments, levied interest u/s 23(3A) of the Act for the belated payment of turnover tax from the end of each year. In fact, amounts paid have been adjusted first towards interest in terms of Section 55C of the Act and balance only was adjusted towards turnover tax and it is against these orders statutory appeals were filed. Even though first appeals were dismissed, on second appeals, the Tribunal relying on the decisions of the Supreme Court in J.K. Synthetics Limited and Birla Cement Works and another Vs. Commercial Taxes Officer, State of Rajasthan and another, and in Maruti Wire Industries Pvt. Ltd. Vs. S.T.O., Ist Circle, Mattancherry and Others, and the two decisions of this court, one in Universal Traders Vs. Agricultural Income Tax and Sales Tax Officer, Adimali and another (1999) 113 STC 11 (KER) : 9 KTR 177 and P.K. Damodaran Vs. State of Kerala, held that interest for default is payable for periods after expiry of 30 days from the date of service of assessment order along with notice of demand. In other words, Tribunal''s finding is that interest is payable only after respondents committed default in payment after service of assessment and demand notices in 2006. Special Government Pleader appearing for State has relied on later Division Bench decision of this Court in Chandramani Traders Vs. State of Kerala, wherein this Court after taking note of the amendment held that Maruti Wire Industries'' case has no application for later period. He also relied on decision of Supreme Court in Commissioner of Trade Tax, Lucknow Vs. Kanhai Ram Thekedar, wherein the Supreme Court has held that the liability of a dealer to pay interest on late payment of tax arises automatically by operation of law. The counsel for the respondent, however, contended that interest payable u/s 23(3A) is for default in payment of tax and respondent-assessee cannot be held to be a defaulter because as and when assessments are made after judgment of the Supreme Court, they have remitted the tax. It is the specific case of the respondent that pursuant to the judgment of the Supreme Court, demand was raised on them on regular assessment and as and when regular assessments were completed, they remitted tax. However it is seen that even after judgment of the Supreme Court pronounced on 6.5.2005, respondent has not cared to file revised returns or remit tax on excise duty. Further, though the Assessing officer issued notice on 13.10.05, respondent filed revised return only for three months, i.e. for January, February and March 2002 and for the remaining period, they waited for assessments to be taken up for filing revised returns, that too without payment of tax.

We are not called upon to reconsider the correctness of this judgment. In fact we have also taken the view that the said judgment does not require any reconsideration. In fact judgment of this Court reported in State of Kerala Vs. Kaycee Distilleries, itself has not been stayed by the Apex Court. Admittedly, only the recovery has been stayed.

In view of the above discussion, we find no merit in the revision and is liable to be dismissed. We answer the questions of law against the petitioner/assessee and dismiss the revision petition. Learned counsel for the petitioner submits that proceedings are initiated to recover the amount due. He prayed that proceedings may be kept in abeyance for two weeks. Learned Government Pleader would in fact pointed out that the stay granted by the Apex Court in appeal filed against Kaycee''s case is on the basis that assessee has paid the tax and in this case the petitioner has purportedly availed the benefit of paying the entire amount availing Amnesty scheme. Having considered the facts and circumstances, we feel that recovery steps can be kept in abeyance for a short period. We direct that recovery proceedings pursuant to Annexure-F will be kept in abeyance for two weeks from today.