IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR FRIDAY, THE 12TH DECEMBER 2008 / 21ST AGRAHAYANA 1930 WP(C).No. 23966 of 2006(C) -------------------------- PETITIONER(S): --------------- MESSRS.KERALA DISTILLERIES, K.PUDUR, KANJIKODE, PALAKKAD-678 621. (AMENDED) THE NAME AND ADDRESS OF THE PETITIONER IS SUBSTITUTED AND AMENDED AS "M/S.UNITED SPIRITS LIMITED, KANJIKODE, PALAKKAD, REP. BY ITS AUTHORISED SIGNATORY MR.A.RAJENDRAN", AS PER ORDER DT.18.12.2007 IN I.A. NO.16616/2007. BY ADV. SRI.RAJU K.MATHEWS SRI.M.P.VINOD RESPONDENT(S): --------------- 1. STATE OF KERALA, REPRESENTED BY THE SECRETARY TO GOVERNMENT, TAXES (B) DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM. 2. THE ASST.COMMISSIONER OF SALES TAX (ASSESSMENT), COMMERCIAL TAXES, SPECIAL CIRCLE, PALAKKAD. 3. KERALA STATE BEVERAGES (MANUFACTURING AND MARKETING) CORPORATION LIMITED, SASTHA KRIPA, SASTHAMANGALAM, THIRUVANANTHAPURAM. R1&2 BY SPL. G.P. SRI.VINOD CHANDRAN ADV. SRI.K.P.DANDAPANI (SR.) FOR R.3 SRI.ELVIN PETER P.J. FOR R.3 THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ALONG WITH WPC 12030/2006 & CONN. CASES ON 12/12/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX PETITIONER'S EXHIBITS: P1: TRUE COPY OF ORDER IN CA NO.2249-2257 OF 2000 DT.25.9.2000 OF THIS HON'BLE COURT. P2: TRUE COPY OF ORDER DT.9.8.2005 MODIFYING THE ORDER DT.29.1.2004 OF THIS HON'BLE COURT. P3: TRUE COPY OF INTERIM ORDER OF THE HON'BLE SUPREME COURT. P4: TRUE COPY OF ORDER OF ASSESSMENT FOR THE YEAR 1998-99 DT.29.10.2005. P5: .DO. 1999-2000 DT.31.10.2005. P6: .DO. 2002-2003 DT.30.12.2005. P7: .DO. 2003-2004 DT.30.12.2005. P8 TRUE COPY OF ORDER DT.28.4.2006 OF THE HON'BLE SUPREME COURT OF INDIA. P9: TRUE COPY OF FORM 16 NOTICE DT.8.6.2006 IN RELATION TO ASSESSMENT YEAR 1998-99. P10: .DO. 1999-2000. P11: .DO. 2002-2003. P12: .DO. 2003-2004. P13: TRUE COPY OF LETTER ISSUED BY BEVERAGES CORPORATION DT.16.5.2006 TO THE PETITIONER. P14: TRUE COPY OF COMMUNICATION SENT BY PETITIONER TO ASST. COMMISSIONER, COMMERCIAL TAXES ENCLOSING CHEQUE TOWARDS TURNOVER TAX. P15: TRUE COPY OF COMMUNICATION SENT BY PETITIOENR TO ASST. COMMISSIONER, COMMERCIAL TAXES DT.25.8.2006. TRUE COPY PA TO JUDGE C.N. RAMACHANDRAN NAIR, J. -------------------------------------------- W.P.C. NOs. 23966,4337,29234 12030 & 24000 OF 2006 -------------------------------------------- Dated this the 12th day of December, 2008 JUDGMENT Petitioners are distilleries engaged in manufacture and sale of Indian Made Foreign Liquor. The entire product sales of the petitioners in Kerala are to Kerala State Beverages Corporation, a Government of Kerala undertaking enjoying monopoly distribution rights of Indian Made Foreign Liquor. While sales tax at the rates prescribed in the First Schedule to the KGST Act is paid on liquor at the point of sale by the Kerala State Beverages Corporation, petitioners are liable to pay turnover tax on their sales turnover. Like sales tax, excise duty on liquor was also paid by the Beverages Corporation. In the sales tax assessments from 1998-99 onwards, turnover tax was demanded from the petitioners not only on the sale price received by them from Beverages Corporation, but on the excise duty paid on the products by the Beverages Corporation directly to the Excise Department. This was successfully contested by the petitioners in two 2 batch cases before this Court wherein this Court held that no turnover tax is payable on the excise duty paid by the Beverages Corporation. However, on appeal by the State, judgments of this Court were modified by the Supreme Court in the judgment in STATE OF KERALA V. MAHARASHTRA DISTILLERIES LTD. AND OTHERS, reported in (2005) 141 STC 358. While the Supreme Court upheld the claim of the petitioners and others for the period upto 4.1.1999, the Court took note of the amendment to Foreign Liquor Rules with effect from 5.1.1999 wherein Rule 13(9) of the said Rules provide for lifting and taking delivery of liquor by the Beverages Corporation from the warehouses of the petitioners and other manufacturers only on payment of excise duty. The Supreme Court therefore held that after the amendment that is from 5.1.1999 excise duty forms part of turnover of the petitioners for the purpose of payment of turnover tax. Turnover tax payable by the petitioners fell in arrears on account of litigation pending before Courts and ultimately the issue is finally settled by the aforesaid judgment of the Supreme Court wherein petitioners and other distilleries and bottling units 3 selling liquor to the Beverages Corporation are found liable to pay turnover tax on the sale price including excise duty paid by the Beverages Corporation from 5.1.1999. In view of the judgment of the Supreme Court, the assessing officers have demanded arrears of turnover tax along with interest. Since petitioners persisted default, the assessing officers have issued garnishee proceedings under Section 25 requesting the Beverages Corporation to make recovery from the petitioners' bills and make payment to the Department. Though not very clear from the orders and notices impugned in these cases, it is clear that payments made by the petitioners have been first adjusted towards interest as provided under Section 55C of the KGST Act and balance if any only was adjusted towards turnover tax. It is against these demand notices and garnishee proceedings that petitioners have filed these Writ Petition for declaration that they are not liable to pay interest, that payments should not be adjusted towards interest first under Section 55C and for quashing the impugned demand notices and garnishee proceedings. Even though during hearing, counsel for the petitioners submitted that cases should be decided on merits on all the 4 issues raised and they wanted to engage senior counsel, I felt that impugned proceedings are not proper adjudication orders and what is required is proper adjudication by the assessing authority after giving opportunity to the petitioners and if petitioners have any grievance against adjudication orders, remedy has to be first pursued before the statutory authorities because issue involves meticulous calculation of interest after giving credit for the payments made. Further I notice that except in one or two notices, the assessing officer has not referred to the Section under which interest is demanded from the petitioners. Interest for default in payment of tax is payable under Section 23(3), 23 (3A) and 23(3B) of the KGST Act. Sub-section (3A) was introduced to Section 23 by Act 14 of 1998 with effect from 1.4.1998 to ensure that interest is payable on actual amount of tax payable, no matter whether turnover was not returned in the returns filed by the dealers. Similarly sub-section (3B) of Section 23 provides for levy of interest even during period when collection of tax remained stayed by court orders. Even though sub-section (3A) was introduced way back in 1998 and though petitioners have not chosen to challenge the provision 5 when Writ Petitions were filed, at this distance of time, some of them have filed applications to amend the Writ Petitions to challenge the validity of sub-section (3A) of Section 23 and Section 55C of the Act. I am of the view that the challenge against the validity of statutory provisions is mainly to maintain the Writ Petition because remaining challenge in the Writ Petition is computation of interest which should be contested before the statutory authority in appeal or revision. In any case I by separate orders passed in the amendment application left freedom to the petitioners to challenge the validity of any provision if so desired after proper adjudication orders are issued determining interest liability in accordance with statutory provisions pursuant to directions contained in this judgment. I therefore proceed to dispose of the cases as follows. 2. WPC Nos. 12030 of 2006 and 23966 of 2006 are filed one and the same party. The orders challenged in WPC No. 12030 of 2006 are Exts. P4 to P7. While Ext.P4 is the assessment order for the year 2001- 02 Ext.P5 is the notice demanding interest without mentioning the provision under which such interest is demanded. Of course demand 6 can be raised under Section 23(3), or under Section 23(3A) read with Section 23(3B), if applicable. Exts. P6 and P7 are garnishee proceedings under Section 25 demanding payment from Beverages Corporation from out of bill amount payable to the petitioner. So far as WPC 23966 of 2006 is concerned, the challenge is against Exts. P9 to P13 which are again garnishee proceedings issued demanding payment from Beverages Corporation from out of sale price payable to the petitioner for the assessment years 1998-99 to 2003-04. While considering these two cases, I have to necessarily refer to Exts. P14 and P15 produced in WPC 23966 of 2006 issued by the petitioners to the assessing officer on 28.7.2006 and 25.8.2006 respectively. The sum and substance of these two proceedings is that petitioner has paid substantial amount of Rs. 5,87,54,384/- towards turnover tax dues for the assessment years 1998-99 to 2003-04 only on 28.7.2006, that is after a delay ranging from 7 years for the year 1998-99 to 2 years for the year 2003-04. Turnover tax so paid is stated to be attributable to the excise duty payments made by the Beverages Corporation from 5.1.1999 onwards and therefore petitioner has accepted the judgment of 7 the Supreme Court holding that turnover tax is payable on the excise duty element also with effect from 5.1.1999 onwards. Supreme Court in it's judgment has not stated anything about petitioner's liability for interest which has to be computed in accordance with statutory provisions. I do not want to decide in advance the scope of Section 23 (3A) and section 23(3B) introduced to the statute enlarging the scope of interest liability for belated payment of tax. Until the judgment of the Supreme Court rendered on 6.5.2005 petitioner had obtained stay and later judgment from this Court and it is to be seen how Section operates for the purpose of levy of interest during this period. Strangely even after Supreme Court declared liability by judgment dated 6.5.2005, petitioner chose to remit turnover tax more than a year after pronouncement of judgment of the Supreme court. Therefore interest is payable, but the question is for what period and exactly by operation of what section. Since demand notices are issued and detailed working is not given, I feel the assessing officer should examine the records in detail, determine the liability on a month to month basis as turnover tax is payable along with monthly returns, 8 determine the default period and work out interest liability with reference to the applicable provision of the statute whether it be Section 23(3), Section 23(3A) or Section 23(3B) of the Act. I do not think petitioners can press for advance ruling from us on determination of interest liability which has to be made by the assessing officer in accordance with statutory provisions. 3. So far as other Writ Petitions are concerned, I notice that dispute is of the same nature as in the cases discussed above. In the case of WPC 29234 of 2006, the challenge is against Exts. P17 to P21 orders which are assessments completed demanding turnover tax and interest for the assessment years 1998-99 to 2000-01 and for 2002-03 and 2003-04. Exts. P23 to P25 are consequential garnishee proceedings issued pursuant to demand notices. In this case also it is pertinent to note from Ext.P22 statement filed by the petitioner that there is admitted delay in payment of turnover tax. In fact substantial amount of Rs. 6,24,14,063/- is seen paid on various dates commencing from 2.9.2005 onwards. Since there is admitted delay, interest is payable by the petitioner, and it is only a matter of calculation of actual 9 interest payable by the petitioner in accordance with statutory provisions. 4. The challenge in WPC 24000 of 2006 is against Exts. P5 to P9. While Ext.P5 order is intimation of adjustment of the payment first towards interest under Section 55C for the year 1998-99, Exts. P6 to P9 are demand notices demanding interest for the years 1999-2000, 2000-01, 2002-03 and 2003-04. In this case also I am of the view that without detailed adjudication interest could not recovered from the petitioner. 5. So far WPC 4337 of 2006 is concerned, the challenge is against demand of interest for the years 1999-2000 to 2001-02. Here again I notice that the assessing officer has not completed detailed adjudication. 6. Even though I find that detailed adjudication is called for in all the cases, from the facts admitted by the petitioners, and noticed by me, there is delay in payment of turnover tax even after the matter is finally settled by a Constitution Bench decision of the Supreme Court. Both sides point out that there is mistake in the judgment of the 10 Supreme Court with regard to statement of payment of excise duty by the Beverages Corporation after 5.1.1999. The Court has wrongly stated that excise duty was paid by the Beverages Corporation to the Distilleries as against payment of excise duty by the Beverages Corporation directly to the Excise Department. I do not think petitioners can capitalise from out of a mistaken statement of fact by the Supreme Court because what is clearly stated in the judgment is that petitioners are liable for payment of turnover tax on the turnover including excise duty paid by the Beverages Corporation from 5.1.1999 onwards. After the judgment of the Supreme Court on 6.5.2005, there is absolutely no justification for the petitioners to delay payment of turnover tax. Interest is obviously payable under Section 23(3A) if not under Section 23(3) itself for the period of delay after the pronouncement of judgment by the Supreme Court. 7. WPCs are accordingly disposed of quashing demand of interest for all the periods with direction to the assessing officers to completed fresh adjudication after issuing notice containing proposal and after giving opportunity to the petitioners to file reply and of 11 hearing. So far as interim orders issued by this Court and garnishee proceedings challenged in the WPSs. are concerned I modify the same authorising immediate recovery in garnishee proceedings only of so much of the interest payable for delay in payment of turnover tax from the end of the month in which Supreme Court pronounced judgment till date of payment, This will be separately worked out by the assessing officer, demand notices will be issued to the petitioners for immediate payment failing which Beverages Corporation will recover such of the amount demanded under the revised notices and pay to the assessing officer. However, payments or recoveries so made will be only provisional and will be subject to final adjudication as above which will cover the entire period of default. (C.N. RAMACHANDRAN NAIR) Judge kk 12