The Anaparai Estates Ltd. vs The State of Karnataka

S. Sujatha, J.—1. These petitions are directed against the judgment of the Karnataka Appellate Tribunal at Bangalore in STA Nos. 31 to 107/2014 dated 04.12.2014.

The facts in brief are:

- "that the petitioner is a Public Limited Company engaged in the operation and management of certain coffee estates. In order to grow coffee plants, the petitioner had purchased chemicals, fertilizers and pesticides which are being used as manure to protect the plants from pest and disease. The petitioner/company had claimed input tax credit on the purchases of chemicals, fertilizers, pesticides and insecticides. For the assessment years 2006-07 to 2011-Aug 2012 (77 tax periods), the same had been disclosed in the returns filed for all these tax periods. The returns filed by the assessee had been accepted by the Assessing Authority allowing the input tax credit for all the aforesaid tax periods under Section 38(1) of the KVAT Act, 2003 (the ''Act'' for short). The prescribed authority exercising the powers under Section 39(1) of the Act initiated reassessment proceedings and denied the input tax claimed by the petitioner/company, for the above said tax periods, placing reliance on the Judgment of this Court rendered in Balanoor Plantations and Industries Limited v. State of Karnataka reported in , (2014) 70 VST 497. The Assessing Officer/prescribed authority while concluding the reassessments also levied penalty under Section 72(2) of the Act and interest under Section 36(1) of the Act. On appeal filed by the assessee, these orders were confirmed by the First Appellate Authority. On further appeal to the Tribunal, the same are confirmed."

Being aggrieved by the said common judgment passed by the Tribunal, as regards the levy of penalty under Section 72(2) and interest under Section 36(1) of the Act, these petitions are filed by the assessee raising the following substantial question of law:

"Whether on the facts and circumstances of the case, the Tribunal is justified in upholding the levy of penalty under section 72(2) of the KVAT Act 2003 and interest under section 36 of the said Act for all the Tax periods under consideration i.e., 2006-07 to August 2012 (77 Tax periods)?".

We have gone through the grounds urged by the petitioner in the memorandum of petitions whereby it is contended that the returns filed by the assessee disclosed the deduction of input tax claimed, for all the tax periods under consideration. The returns filed by the assessee have been accepted by the department and in such circumstances, imposing the penalty on the ground that the petitioner has understated the tax liability in the returns is uncalled for. The challenge is made on the levy of interest as it is not mandatory. It is urged that sub-section (1) of Section 36 provides for the liability to pay simple interest on any amount of tax which ought to have been declared on a return which has not been declared. The petitioner has relied on the Judgments of the Apex Court in:

"(1) HINDUSTAN STEEL LIMITED v. STATE OF ORISSA (, 25 STC 211).

(2) CIT v. RELIANCE PETRO PRODUCTS (P) LTD. (, 322 ITR 158)

(3) SHREE KRISHNA ELECTRICALS v. STATE OF TAMIL NADU ((2009) 23 VST 249)"

Learned counsel Sri T K Vedamurthy, counsel appearing on behalf of the revenue supports the order passed by the Tribunal and contends that the returns filed by the assessee claiming deduction of input tax wrongly, prima facie establishes that the assessee has understated his liability to tax. Such understatement of tax liability in the returns would definitely call for levy of penalty under Section 72(2) of the Act which is mandatory. Further, it is also contended that levying of interest under Section 36(1) of the Act is to compensate loss of revenue for the default committed by the assessee in not making the payment legally due to the department within the prescribed period. He places reliance on the following Judgment:

"(1) Balanoor Plantations and Industry Ltd. (Writ Appeal No. 6586 to 6633/2012 disposed off on 28.02.2014)."

After perusing the grounds urged by the petitioner in the memorandum of appeal and hearing the learned counsel appearing for the revenue and after perusing the order impugned in these petitions, it is noticed that the Assessing Authority has issued notices under Sections 39(1), 72(2) and 36(1) of the Act to the assessee to initiate revision proceedings and to levy penalty and interest respectively for the relevant assessment years in question based on the Judgment of this Court in the case of M/s. Balanoor Plantations and Industries Ltd., (supra). The assessee has filed detailed objections for imposing the penalty and interest. After considering the objections raised by the assessee, the Assessing Officer concluded assessments disallowing the claim of input tax on the fertilizers, chemicals, pesticides etc. which are used as manure in the course of business.

Accordingly, levied penalty and interest as it is mandatory under the relevant provisions of the Act. Except observing so, no satisfactory reasoning is given by the Assessing Officer to levy penalty and interest. It is true that there is difference between the penalty and interest. Penalty is not automatic where as interest is mandatory. As per the language employed in Section 72(2) of the Act, the condition precedent for imposing penalty is, that the returns filed by the assessee should understate the tax liability. As we noticed, the assessee has claimed the input tax deduction on the purchase of manure like pesticides, chemicals etc, used in the course of business declaring the same in the returns filed. As such, there is no understatement of tax liability made by the assessee, the same are disclosed in the returns to claim input tax deductions. In such circumstances, the Assessing Officer levying penalty as mandatory is not acceptable. The view of the Assessing Authority is confirmed by the appellate authority and Tribunal without appreciating the provisions of Section 72(2) of the Act. Hence, we are of the opinion that the Assessing Officer ought to have considered the objections filed by the assessee in a right perspective and would have passed a speaking order for levying penalty.

It is well settled law that interest is levied in order to compensate for the loss occasioned to the revenue for the delayed payment of tax by the assessee. The order of the Assessing Officer levying interest is in accordance with the provisions of Section 36(1) of the Act. The same being properly appreciated by the First Appellate Authority and the Tribunal, cannot be found fault with. Accordingly, we confirm the levy of interest under Section 36(1) of the Act.

For the reasons stated above, we allow the appeals in part. The orders levying interest under Section 36(1) of the Act is confirmed. The orders passed under Section 72(2) of the Act imposing penalty is set-aside and the matters are remanded back to the Assessing Officer to reconsider the issue of penalty afresh and decide the same in accordance with law after providing an opportunity of hearing to both the parties.

The Assessing Officer is directed to dispose of the matters as expeditiously as possible preferably within a period of three months from the date of appearance of the parties. The assessee is directed to appear before the Assessing Officer personally or through its counsel on 02.03.2016 at 11.00 AM without further notice.

Ordered accordingly.