IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE ACTING CHIEF JUSTICE MR.J.B.KOSHY & THE HONOURABLE MR. JUSTICE P.BHAVADASAN FRIDAY, THE 13TH FEBRUARY 2009 / 24TH MAGHA 1930 WA.No. 2115 of 2007 ---------------------------- AGAINST THE JUDGEMENT IN O.P.NO.4400/2001 DATED 20/03/2007 .................... APPELLANT/ PETITIONER: -------------------------------------- APPOLLO TYRES LTD., SHANMUKHAM ROAD, COCHIN-682 031. BY MR.M.PATHROSE MATTHAI, SENIOR ADVOCATE, ADV. MR.SAJI VARGHESE. RESPONDENTS/ RESPONDENTS: ------------------------------------------------ 1. ASSISTANT COMMISSIONER (ASSESSMENT), COMMERCIAL TAXES, SPECIAL CIRCLE II, ERNAKULAM. 2. GOVERNMENT OF KERALA, REPRESENTED BY THE SECRETARY (TAXES), GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. R1 & R2 BY GOVT. PLEADER MR. VINOD CHANDRAN. THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 13/02/2009,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: prv. J.B.KOSHY, Ag.C.J. & P.BHAVADASAN, J. -------------------------------------- W.A.No.2115 of 2007 ------------------------------------- Dated 13th February, 2009 JUDGMENT Koshy, Ag.C.J . Appellant/petitioner is a company registered under the Companies Act engaged in the manufacture and sale of automotive tyres and tubes. Petitioner is a registered dealer under the Kerala General Sales Tax Act and the Central Sales Tax Act. For the assessment year 1995-96, the petitioner has filed its return before the first respondent declaring the total turnover and taxable turnover. Petitioner has paid the tax on the basis of the taxable turnover furnished in the said return. There was a dispute whether rubber purchased by the petitioner was liable to be included in he purchase turnover. When the earlier demand was made, that was disputed and a Full Bench of this court in Madras Rubber Factory Ltd. v. State of Kerala ((1989) 74 STC 56) held that it is not liable to be included in the purchase turnover. Therefore, at the time of filing the return his declaration was correct and the tax as per the return was paid. But, subsequently the Hon'ble Supreme Court by judgment dated 19.12.1997 in State of Kerala v. Madras Rubber Factory Ltd. ((1998) 108 SC 583) reversed the judgment of this court. W.A.2115/2007 2 Consequently, in 2000, demand was raised and the amount was paid. The whole question is whether petitioner is liable to pay penal interest under section 23(3A) of the KGST Act. Section 23(3A) of the KGST Act reads as follows: “23. Payment and recovery of tax: (3A) Where any dealer has failed to include any turnover of his business in any return filed or where any 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 included the same in thereturn relating to the period to which such turnover relates.” Contention of the petitioner is that the above section was inserted by Act 14 of 1998 with effect from 1.4.1998. It is contended that the above section is not applicable as return was filed in 1996. Even as per the above section, no penal interest is payable so long as return was correct as per the law existing at the time of filing the return. Hence, no penal interest can be charged. Despite the contentions, as can be seen from Ext.P1, 87% interest is charged on the petitioner. The question is whether the above interest is payable if return was correctly filed. Learned counsel for the petitioner relied on the decision of the Hon'ble Supreme Court in Commissioner of Income Tax v. Hindustan Electro Graphites Ltd. ((2000) 243 ITR 48). In W.A.2115/2007 3 that case, the Hon'ble Supreme Court held that if the return was filed correctly as per law applicable on the date of filing the return, subsequent introduction of Clause (iiib) in Section 28 of the Income Tax Act is not applicable as assessee has not committed fault. Even if a retrospective liability was made, that cannot be applicable. It was held by the Supreme Court as follows: “The decision of the Calcutta High Court in Modern Fibotex India Ltd.'s case ((1995 212 ITR 496), squarely covers the issue involved in the present appeal. Then we have t see the law on the date of filing of the return. To attract penal provisions there has to be some element of lack of bona fides unless the law specifically provides otherwise. The case before us does not represent even a bona fide mistake. In fact it is not a case where under some mistaken belief the assessee did not disclose the cash compensatory support received by it which he could offer to tax. It is true that income by way of cash compensatory support became taxable retrospectively with effect from April 1, 1967, but that was by amendment of section 28 by the Finance Act of 1990 which amendment could not have been known before the Finance Act came into force. Levy of additional tax bears all the characteristics of penalty. Additional tax was levied as the assessee did not in his return show the income by way of cash compensatory support. The Assessing Officer on that account levied additional income-tax. No additional tax would have been leviable on the cash compensatory support if the Finance Act, 1990, had not so provided even though retrospectively. The assessee could not have suffered additional W.A.2115/2007 4 tax but for the Finance Act of 1990. After he had filed his return of income, which was correct as per law on the date of filing of the return, it was thereafter that the cash compensatory support also came within the Revenue cannot be heard to say that the levy of additional tax is automatic under section 143(1A) of the Act. If additional tax could be levied in such circumstances, it will be punishing the assessee for no fault of his. That cannot even be the legislative intent. It shocks the very conscience if in the circumstances section 143(1A) could be invoked to levy the additional tax. The following observations by the Constitution Bench of this court in Pannalal Binjraj v. Union of India ((1957) 31 ITR 565 are apt (page 597): “A humane and considerate administration of the relevant provisions of the Income-tax Act would go a long way in allaying the apprehensions of the assessee and if that is done in the true spirit, no assessee will be in a position to charge the Revenue with administering the provisions of the Act with `an evil eye and unequal hand'.” Learned Government Pleader submitted that at the time of filing the return, there was Section 23(3A) which is now re-numbered as section 23(3B). But, that sub-section is only regarding the liability to pay interest for the period when there was stay of demand obtained by the assessee. Here, assessment was made only in 2000 and there was no stay for this particular assessment. Return was filed correctly as per the law applicable on the date of filing. Assessment was made in the year 2000. Even though earlier assessments were under challenge W.A.2115/2007 5 along with Madras Rubber Factory's case (supra), for the assessment year 1995-96 there is no demand or case till 2000. So even section 23(3B) has no application. Since at the time of filing the return, the return was correct as per law, penal interest cannot be charged especially when demand was made as per the Apex Court decision and assessee has paid the tax. But, after assessment was made and demands were issued, interest is payable from the date of demand, even if department allowed instalment facility to pay the amount. The writ appeal is allowed. J.B.KOSHY ACTING CHIEF JUSTICE P.BHAVADASAN JUDGE tks