P.K. Ali Haji vs Board of Revenue (Taxes)

J.B. Koshy, J.—The appellant-assessee had filed annual return in form 8 declaring total and taxable turnover of Rs. 58,37,320 for the year 1990-91 on April 30, 1991 and he paid tax amounting to Rs. 4,53,998 and surcharge on Rs. 27,538 along with return on self-assessment. The appellant is a dealer of arecanut and it is taxable at the last purchase point under the Kerala General Sales Tax Act, 1963. It is the case of the appellant that after verification of records and after collecting details of various purchases through different agents, he found out that turnover was higher and he filed a revised return on June 1, 1994 declaring total and taxable turnover of Rs. 83,60,300 and according to the revised return he was liable to pay the balance tax amount to Rs. 1,73,025 and Rs. 12,591 as surcharge. He paid the above amount with the revised return. This was done without any demand notice or instructions of the assessing authorities. In the assessment order, revised return was accepted but penal interest was imposed on the same as provided u/s 23(3) of the KGST Act. Aggrieved by the above the petitioner filed appeal before the Deputy Commissioner. The Deputy Commissioner held as follows:

I have heard the learned sales tax practitioner and perused the records. The petitioner challenges the demand for penal interest contending that the amount of tax was payable on the after-service of the order of assessment and notice of demand. Section 23(3) of the Act casts a liability for penal interest if default is committed in the Act or in the Rules. The liability is for default in the payment of tax assessed. An assessment either self or statutorily made by the concerned officer is necessary to cast the liability for penal interest. When no return is filed and no admission of liability in tax is made it cannot be deemed fictionally that an assessment has been made on the date on which the return ought to have been filed. It is true that the petitioner was bound by Rule 21(7) to Submit the return and to pay the tax due thereon but the non-filing or incorrect filing of return attracts penalty u/s 45A(l)(c).

On the basis of the above findings he allowed the revision application and held that penal interest is not payable u/s 23(3) even though it may attract penalty u/s 45A(1)(c). In suo motu revision, the Board of Revenue confirmed the demands and set aside the Deputy Commissioner''s order. Against that this appeal is filed.

The various decisions of the Supreme Court were cited by the senior advocate who argued the case. After referring to Rule 21(9) and Sub-rule (5) of Rule 18 of the Kerala General Sales Tax Rules, 1963, it was argued that as held by the Supreme Court in J.K. Synthetics Limited and Birla Cement Works and another Vs. Commercial Taxes Officer, State of Rajasthan and another, an assessee can be directed to pay penal interest only after demand notice was served on him by the assessing authority in accordance with law. Even if the appellant files return, or if there is further assessment without filing any return, the penal interest will be chargeable only from the date of notice of demand. The imposition of penalty is a different matter. The above view was followed by the Supreme Court in Maruti Wire Industries Pvt. Ltd. Vs. S.T.O., Ist Circle, Mattancherry and Others, . The apex court, while carrying the liability to pay penal interest u/s 23(3) of the KGST Act at paragraph 7, held as follows:

In view of the law laid down by the Constitution Bench, we are clearly of the opinion that the liability of the assessee-appellant to pay sales tax could have arisen either on return of turnover being filed by way of self-assessment or else on an order of assessment being made. No doubt Rule 21(7A) of the Kerala General Sales Tax Rules, 1963 casts an obligation on assessees to file a return of total turnover and taxable turnover accompanied by proof of payment of the amount of tax due within 20 days of the previous quarter but such a return was not filed by the appellant. A failure to file return of taxable turnover may render the assessee liable for any other consequences or penal action as provided by law but cannot attract the liability for payment of penal interest under Sub-section (3) of Section 23 of the Act on the parity of reasoning that if a return of turnover would have been filed on the due date then the tax as per return would have become due and payable on that date.

While interpreting the provisions of the Kerala General Sales Tax Act u/s 23(3) in P.K. Damodaran Vs. State of Kerala, , a Division Bench of this Court also followed the same principle even though the learned Counsel for the Revenue invited attention to Sub-section (3A). The above Sub-section was introduced only on April 1, 1998. Here the filing of revised return and payment of tax on self-assessment was before 1994 and we are not looking into the application of Section 23(3A) in this proceeding. Following the findings of the honourable Supreme Court, we set aside the impugned order and confirm the view of the Deputy Commissioner. This appeal is allowed.