IN THE HIGH COURT OF KERALA AT ERNAKULAM
ST.Rev..No. 90 of 2009()
1. STATE OF KERALA, REPRESENTED BY
1. WESTERN INDIA COSMETIC AND HEALTH
For Petitioner :GOVERNMENT PLEADER
For Respondent :DR.K.B.MUHAMED KUTTY (SR.) The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR The Hon'ble MR. Justice HARUN-UL-RASHID
The Hon'ble MR. Justice V.K.MOHANAN
O R D E R
C .N. RAMACHANDRAN NAIR
V.K. MOHANAN, JJ.
-------------------------------------------- S. T. Rev. No. 90 & 107 OF 2009
-------------------------------------------- Dated this the 16th day of December, 2009
Ramachandran Nair, J.
A Division Bench, after doubting the correctness of the judgment of this Court in P.K. DAMODRAN's case, 138 STC 442, has referred this case for decision by Full Bench on the scope of interest payable under Section 23(3A) of the K.G.S.T. Act, hereinafter called the "Act". We have heard Special Government Pleader for the revision petitioner and various counsel appearing for the respondent-assessees.
2. The question raised is whether short payment of tax by the dealers along with monthly returns either on account of non-inclusion of turnover or failure to return turnover at the full rate of tax attracts interest under Section 23(3A) of the Act. In ST Rev. 107 of 2009 the respondent is a dealer in paper who paid tax on the turnover of paper at 4% as against 8% payable under the Act. The respondent-dealer in the other case has failed to include turnover in the return which led to levy 2
of interest under Section 23(3A) of the Act. The Tribunal in all the cases cancelled levy of interest following the Division Bench decision of this Court above referred wherein this Court held that interest could be levied under Section 23(3A) only if there is failure on the part of the dealer to include any turnover of his business in the return filed and consequent escapement of turnover in the assessment. When the matter was heard, the Division Bench felt that subsequent amendment introduced to Section 23(3A) with effect from 1.4.2004 is clarificatory in nature and the interest under Section 23(3A) being compensatory in nature is payable on the short fall in payment of tax which is the difference between the paid tax and assessed tax, whatever be the circumstances which led to non-payment of full amount of tax in time. In order to consider the issue , we have to refer to the provisions of Section 23(3A) as it originally stood and after it's amendment by Finance Act, 2004 with effect from 1.4.2004, which are extracted below:
23. Payment and recovery of tax:- (1)...... (3A) Where any dealer has failed to include any turnover of his business in any return filed or where any 3
turnover has escaped assessment, interest under sub-section (3) shall accrue on the tax due on such turnover with effect from such date on which the tax would have fallen due for payment had the dealer include the same in the return relating to the period to which such turnover relates (Originally stood)
3A. Where any dealer has failed to include any turnover or taxable turnover of his business or to pay the tax due thereon on the taxable turnover in any return filed or where any turnover or tax due has escaped assessment, interest under sub-section (3) shall accrue on the tax due on the turnover with effect from such date on which the tax due would have fallen due for payment, had the dealer included the same in the return relating to the period to which the turnover or tax, as the case may be, relates (After amendment).
3. The contention raised by Special Government appearing for the State is that interest under Section 23(3A) is payable from the period the tax would have been paid, had the dealer included the turnover in the return filed. On the other hand, counsel appearing for respondents contended that if the turnover is included in the return the assessee will have no liability to pay interest on non-payment or short payment of tax, and if the same happens on account of misclassification of goods under different rates, Rule 21(9) of the Rules authorises the assessing officer to scrutinize the returns filed and to 4
make provisional or regular assessment demanding actual tax. Therefore according to counsel if there is failure on the part of the assessing officer assessee cannot be called upon to pay interest for the lapses of the officer. Special Government Pleader has referred to the decision of this Court in CHANDRAMANI TRADERS V. STATE OF KERALA, (2008) 16 VST 294 and two unreported decisions of this Court in ST Rev. No. 484 of 2004 and M.F.A. No. 331 of 2000 and contended that interest is payable under Section 23(3A) from the due date it was payable till payment, irrespective of the reason for non- payment, short payment or delayed payment of tax.
4. On going through the provisions both before and after the amendment, it is clear that interest is compensatory in nature inasmuch as it is payable from such date on which tax would have been fallen due, had the dealer included actual turnover in the return relating to such period. Liability arises on account of failure of the dealer to include any turnover of his business in any return filed. In this context, counsel for the respondents submitted that turnover by itself does not determine any tax liability and that is why provision is amended later 5
to include taxable turnover in the Section and consequently there cannot be any liability for interest for period prior to the amendment if turnover was fully returned. We are unable to accept this contention because the question whether there is failure on the part of the assessee to include turnover in the return filed has to be considered with reference to the return itself, which is form No. 9 prescribed under the Rules. It is to be noted that dealer is required to give description and turnover of each goods, classification made with reference to entries in the Schedule to the Act, the point of sale and the rate of tax of taxable goods. There is a specific column provided in the return to declare the turnover on exempted goods. Therefore the dealer is expected to file return disclosing the entire turnover of all the goods and by bifurcating turnover between taxable and non-taxable and again classifying taxable goods at applicable rate on turnover of each such goods. Non-payment or short payment will arise on account of the dealer mis-classifying taxable goods as non-taxable and can also happen on account of mis- classification of taxable goods at rates lower than the rates provided in the schedules to the Act. Therefore failure of inclusion of turnover in 6
the return leading to non-payment or short-payment of tax uder the pre-amended provision means non-inclusion of taxable turnover or any part there of at the appropriate rate of tax. We hold that the amendment is only clarificatory because the turnover omitted in the return that attracts liability for interest is taxable turnover or otherwise the section before it's amendment becomes meaningless. Interest payable under Section 23(3A) is from the date on which tax would have been payable, had the dealer included the turnover at the correct rate of tax in the return filed. Interest under the Section is attracted if there is omission on the part of the dealer to include any taxable turnover in the return filed or wrong claim of exemption made on taxable turnover and further on account of misclassification of goods at lower rate of tax than the actual rate of tax that is payable on the turnover of goods. Further, even if the assessment is made based on the return filed, and such assessment happens to be incorrect later and the demand of tax is increased through revision of assessment under Section 19(1) pursuant to orders under Section 35(1), still the assessee will be liable to pay interest under Section 23(3A) on the differential tax that is between 7
assessed tax and tax paid based on the return.
5. On going through the judgment of this Court above referred, we do not find that this Court has considered the nature of interest payable under Section 23(3A) which we have found to be compensatory in nature. Further this Court has not examined the manner in which a dealer has to file return, the manner in which the dealer has to include turnover of various goods in the return to be filed and the manner of payment of tax along with return contemplated under the Rules. In view of our above finding, the judgment of this Court above referred cannot be said to be laying the correct interpretation of Section 23(3A) of the Act. The finding of this Court is that even if a dealer has declared the turnover at lower rate of tax as against higher rate payable under the Act, still the dealer is not liable to pay interest under Section 23(3A) because there was no omission to include turnover. This interpretation in our view defeats the very purpose of the section which is to recover interest in the form of compensation for belated payment of tax. We therefore overrule the judgment in P.K. DAMODRAN's case above referred and allow 8
revision cases by reversing the orders of the Tribunal and by restoring the interest levied under Section 23(3A). However, counsel appearing for the respondents submitted that but for the favourable orders issued by the Tribunal, though now found to be wrong by this Court, respondents should have settled the liability towards interest under the Amnesty Scheme, that was prevalent upto 31.3.2009. We find force in this contention because had the Tribunal dismissed the appeals probably respondents would have settled the liability under the Amnesty Scheme. We therefore direct the assessing officer to grant amnesty benefit to the respondents reducing the interest in terms of the scheme and allow settlement of liability by demanding further interest at one per cent per month for the amnesty amount payable from the last date for payment under the amnesty scheme till date of payment. Respondents are directed to make application in this regard before the assessing officer within three weeks from the date of receipt of a copy of this judgment and the officer is directed to allow them to settle liability by making payment within one month thereafter. Demand notice should be raised within one week from the date of making 9
application. We make it clear that amnesty benefit extended by us to the respondents will apply only to the respondents because of the peculiar facts stated above.