IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON MONDAY, THE 16TH AUGUST 2010 / 25TH SRAVANA 1932 WP(C).No. 18796 of 2010(Y) -------------------------- PETITIONER: --------------- M/S.ALWAYE SUGAR AGENCY, MARKET ROAD, ALUVA, REPRESENTED BY ABDUL HAMEED, MANAGING PARTNER. BY ADV. MR. HARISANKAR V. MENON MS. MEERA V.MENON RESPONDENTS: --------------- 1. COMMERCIAL TAX OFFICER, ALWAYE. 2. INSPECTING ASST.COMMISSIONR, DEPARTMENT OF COMMERCIAL TAXES, MATTANCHERRY. 3. STATE OF KERALA, REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. BY SPECIAL GOVERNMENT PLEADER FOR TAXES MR. K. VINOD CHANDRAN THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 16/08/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: (CR.) P.R. RAMACHANDRA MENON J. ~~~~~~~~~~~~~~~~~~~~~~~ W.P. (C) No. 18796 of 2010 ~~~~~~~~~~~~~~~~~~~~~~~ Dated, this the 16th day of August, 2010 JUDGMENT The issue involved in this case is, whether the payments effected by the petitioner towards the arrears of tax liability, after the declaration of the proposed 'Amnesty Scheme' w.e.f 1.4.2010 in the 'Budget Speech' 2010, with specific request to have it set off against the principal tax and surcharge, could have been unilaterally appropriated by the departmental authorities against 'interest', placing reliance on Section 55 C of the KGST Act, contending that, as on the date of payment, the Scheme had not actually come into force. 2. The petitioner firm was in arrears of sales tax with regard to the year 1997 – 98 and the first respondent initiated recovery steps for realization of the dues, coming to a total of Rs.3,82,015/- including interest. In the meanwhile, the proposal for settlement of tax dues was announced in the Kerala Budget Speech 2010, letting it known to all concerned that, similar benefit as announced in the 2008 Scheme, would be implemented w.e.f. 1.4.2010 till 30.6.2010, enabling the defaulters to clear the liability by availing the benefit of the Scheme. True copy of the relevant portion of the Budget Speech as above is produced as Ext. P1. W.P. (C) No. 18796 of 2010 : 2 : 3. Immediately on coming to know about the declaration made by the Finance Minister in the Budget Speech, the petitioner volunteered to avail the benefit of the said Scheme, which in fact, was to be applied for and obtained after notification of the Scheme w.e.f. 01.04.2010. A specific request was made before the second respondent, as borne by Ext. P2 dated 20.3.2010 (with reference to the contents of paragraph '205' of the Budget Speech, whereby the Scheme was announced), requesting to keep the revenue recovery proceedings in abeyance till proper application is filed under the Scheme and orders are passed by the assessing authority thereon. In token of willingness of the petitioner to pay the arrears under the Amnesty Scheme, a sum of Rs. 75,000/- was also caused to be paid, which was requested to be adjusted against the sales tax and surcharge dues. 4. In the meanwhile, the Scheme was declared and the petitioner filed necessary application for availing the benefit under the Scheme and this was sanctioned as per Ext. P3 dated 28.5.2010, whereby the petitioner was required to satisfy a total sum of Rs. 1,64,291/- to settle the liability once and for all. On receipt of Ext. P3, the petitioner submitted a letter dated 1.6.2010, referring to the payment of Rs.75,000/- already made by the petitioner along with Ext. P2 and to have it set off/given credit to, while fixing the liability under the Scheme. W.P. (C) No. 18796 of 2010 : 3 : This was replied by the first respondent vide Ext. P4 dated 02.06.2010, stating that, as on the date of remittance of Rs.75,000/- on 20.03.2010, the Amnesty Scheme was not brought into force and that the application form for availing the benefit under the Scheme, having been filed by the petitioner only on 09.05.2010, the request could not be entertained and that the amount paid was adjusted towards 'interest' under Section 55 C of the KGST Act, which course is subjected to challenge in this Writ Petition. 5. The respondents have filed a counter affidavit seeking to justify the stand reflected in Ext. P4. It is stated that the entire dues of the petitioner were calculated as Rs. 3,62,251/- including tax, surcharge and interest and it was notified for revenue recovery on 14.01.2010. The 'Amnesty Scheme ' introduced by Section 23 B of the KGST Act by the Kerala Finance Act, 2008 was not in force at that time. However, it is conceded that, the Finance Minister had announced the reintroduction of the 'Amnesty Scheme' w.e.f. 01.04.2010 to 30.06.2010 in the Budget Speech and that the Kerala Finance Bill, 2010 also contained the provisions, by which the Scheme was brought into force w.e.f. 01.04.2010. Since, filing of application was necessary and the eligibility to get the benefit under the Scheme was to be decided, payment effected prior to commencement of the said Scheme was not W.P. (C) No. 18796 of 2010 : 4 : liable to be set off, as sought for by the petitioner and that the same could be credited only against 'interest' as provided under Section 55 C of the KGST Act. It is also contended that, the appropriation against interest is 'automatic', on effecting the payments and further that the payment effected by the petitioner was before the second respondent/ Enforcing authority, while the application for considering the eligibility of the 'Amnesty Scheme' was to be made before the first respondent/assessing authority. Two decisions are also brought to the notice of this Court in support of the above contentions; the first one by a learned Single Judge of this Court reported in Aby Engineers and Consultants (P) Ltd., Ernakulam Vs. The Assistant Commissioner (2009 (2) KLJ 228) and the other one by a Division Bench of this Court in Writ Appeal 298 of 2010. 6. With regard to the scope and applicability of the above verdicts, it is to be noted that, the rights and liberties of the department to appropriate the payment is clearly dealt with under Section '55 C' of the KGST Act, which is extracted below:- 55 C. Appropriation of payment :- (1) Where any tax or any other amount due or demanded under the Act is paid by any dealer or other person, the payments so made shall be appropriated first towards interest accrued on such tax or other W.P. (C) No. 18796 of 2010 : 5 : amount under sub-section (3) of Section 23 on such date of payment and the balance available shall be appropriated towards principal outstanding, notwithstanding any request to the contrary by the dealer or any person making such payments. (2) Notwithstanding anything contained in sub- section (1) where any dealer or other person has paid any amount towards tax or any other amount and such payment has been set off towards the principal amount prior to the coming into effect of this section, no recomputation of such payment shall be made under sub-section (1) By virtue of the Sub section (1) of 55 C., it is open for the department to appropriate any payment first against 'interest', notwithstanding the request made by the party concerned, specifying any contrary intention. By virtue of Sub section (2), some sort of concession is provided, making it clear that, if the payments effected already had been set off towards the principal amount, prior to the coming into force of the above section, no recomputation of the said amount was to be made under Sub section (1). The above provision came into effect from 01.01.2000 and by virtue of the Subsection (2), the intention of the Legislature was very much to put a quietus to the matter in respect of the instances earlier, when the manner of appropriation was rather in fluid state and the amounts satisfied by the persons concerned were W.P. (C) No. 18796 of 2010 : 6 : actually set off against the 'tax', before appropriating the same against 'interest'. 7. The question considered by the single bench in Aby Engineers and Consultants (P) Ltd., Ernakulam Vs. The Assistant Commissioner (2009 (2) KLJ 228) was mainly with regard to two aspects, as observed in paragraph 4 of the verdict. The first contention was that, since the payments were made in relation to the years prior to the insertion of Section 55 C of the KGST Act, the payments ought to have been adjusted against the 'tax' and not towards 'interest'. The said proposition was mooted mainly on two grounds; the first one placing reliance on Sections 59 and 60 of the Indian Contract Act and the second one, on the ground that the assessment and the liability in respect of the period prior to introduction of Section 55 C ought to have been worked out and the payment ought to have been set off towards the 'principal', till 31.12.1999 and set off against 'interest' could only be in respect of the period after 01.01.2000. 8. After discussing the facts, circumstances and the relevant provisions of law, it was held that the circumstances contemplated under Sections 59 and 60 of the Indian Contract Act were entirely different, which pre-supposes existence of several distinct debts and the debtor effects the payment with either express intimation or the W.P. (C) No. 18796 of 2010 : 7 : circumstances showing that the payment is in discharge of some particular debt. In the light of the law declared by the Apex Court in I.C.D.S. Ltd. Vs. 5m it ha ben H. Patel (AIR 1999 SC 1036), holding that it cannot be said that principal and interest due on a single debt or decree passed on such debt carrying subsequent interest are to be treated as several and distinct debts. The above contention was fairly stated as not pressed by the learned counsel, which accordingly stands recorded in paragraph 5 of the said judgment. 9. With regard to the other contentions, it was observed that, all payments were effected 'after 01.01.00' and this being the position, the mandate under Subsection (1) of Section 55 C has already taken in breath and hence the contentions raised from the part of the petitioner therein did not merit any consideration. Referring to the contents of sub Section (2), it was observed that, by virtue of necessary implication, even prior to Section 55 C, if any payment was made, it was certainly open to the officer to have it adjusted against 'interest' and as such, the petitioner may not have the right to contend that, even prior to Section 55 C there was legal right to have the amount appropriated against the head, on a mere request to set it off against the tax. Accordingly, interference was declined and the Writ Petition was dismissed, as borne by the verdict reported in 2009 (2) KLJ 228. This W.P. (C) No. 18796 of 2010 : 8 : Court finds it very difficult to accept the version of the learned Special Government Pleader that, the issue in the instant case is covered by the decision cited supra in Aby Engineers and Consultants (P) Ltd., Ernakulam Vs. The Assistant Commissioner (2009 (2) KLJ 228), as it stands entirely on a different footing and not applicable to the case in hand. 10. The learned counsel for the petitioner however places reliance on the observation made by the learned Judge in 'paragraph 8' of the above verdict, referring to the Scheme and Scope under Sub section (2), holding that it has two parts, the first one, payments made by the dealer and the second one, setting off the amounts towards the principal amount, contending that, mere payment was not enough and that the provision further requires actual 'appropriation' by an officer towards the principal amount. In the instant case, the learned counsel submits that, eventhough the payment was effected on 20.03.2010 as borne by Ext. P2, the actual appropriation was made only on passing Ext. P3 order dated 28.5.2010, on which day the Scheme was very much in existence. 11. With regard to the judgment rendered by the Division Bench in W.A. 298 of 2010, the benefit granted in terms of Sub section 4 of Section 23 B of the KGST Act was withdrawn, for violating the W.P. (C) No. 18796 of 2010 : 9 : conditions of the 'Amnesty Scheme' as stipulated under Sub clause/Sub section 5. Still, the learned Single Judge allowed the claim of the assessee, referring to the pendency of the application for rectification of the assesssment, when the application for Amnesty Scheme was filed, observing that, the 'time requirement' as specified under the Scheme could not have been widened under any circumstances and further that, if the assessee succeeded in furtherance to the appeal, revision or rectification, the benefit could be claimed by way of refund of the tax paid under the 'Amnesty Scheme' as provided under the Sub Section 7 of Section 23 B. Observing that, the Scheme, statutory prescription and the time frame were to be strictly followed, which could not have been extended by the learned Single Judge, interference was made, allowing the Writ Appeal filed by the department in part, to the above extent. This decision is also not applicable to the case in hand, as the situation pointed out is not with regard to the extension of time limit,. Even if it is assumed for the sake of a moment, that the petitioner has not complied with the demand, as stipulated in Ext. P3 order granting the benefit of the Scheme, the fact remains that the Scheme itself, which was originally notified w.e.f. 1.4.2010 till 30.6.2010 has now been extended till 30.9.2010. As such, the said decision is not liable to be considered as a binding precedent to the issue in hand. W.P. (C) No. 18796 of 2010 : 10 : 12. With regard to the merits involved in the present case, it is an admitted fact that the 'Budget Proposal' was made as to the introduction of the Amnesty Scheme w.e.f 1.4.2010 till 30.6.2010 and it was after the said Budget Speech, the petitioner volunteered to effect the payment of Rs.75,000/- as a token of bonafides to have the liability settled, simultaneously seeking to keep the revenue recovery proceedings in abeyance till the above Scheme was notified and the application to be preferred by the petitioner was considered accordingly, as requested in Ext. P2 dated 20.3.2010. 13. Obviously, the declaration of the Scheme and the benefit sought to be extended thereunder, enabling the defaulters to opt for the same, to clear the liability, availing the benefit of waiver of a substantial portion of the liability was with an intent to generate revenue in a better and effective manner, rather as a measure of 'give and take' policy. The success of the Scheme notified earlier, with regard to the revenue collection, the factual circumstance that the several persons could not make use of the opportunity because of the time limit and other adverse circumstances as given in Ext.P1 Budget Speech etc. weighed much and the 'Legislature' thought it fit to renotify the Scheme, providing necessary provisions in the Finance Bill 2010. Declaration of such Scheme is purely a matter of 'Policy' of the Government. Once such a W.P. (C) No. 18796 of 2010 : 11 : 'Policy' was declared and proclaimed to be given effect to from 01.04.2010, the first question that comes up for consideration is whether there could have been any further coercive proceedings under the Kerala Revenue Recovery Act from the part of the respondents, particularly the second respondent. The petitioner was very much at liberty to wait till 01.04.2010, filing necessary application to have his matter considered as to the eligibility and to have satisfied the liability without effecting any 'pre deposit' as done by him in the instant case. As put it clear in Ext. P2, it was only as a 'token of willingness/bonafides' to avail the benefit of the Scheme announced vide Ext. P1, that the petitioner effected payment of Rs. 75,000/- specifically seeking the same to be given credit to, in respect of the amount payable under the Scheme and not otherwise. To put it more clear, the benefit contemplated and sought to be given by the Government by virtue of the 'Amnesty Scheme' as a matter of policy, specifying the manner of appropriation, rather stands on a different/higher pedestal, notwithstanding the manner of appropriation as provided under Section 55 C. 14. The stand of the respondents as given in the opening line of paragraph 4 which reads as “ the contention that the petitioner had paid the said amount in pursuance to Ext. P1 proposal cannot be W.P. (C) No. 18796 of 2010 : 12 : countenanced since by the proposal itself it was abundantly clear that the same will be effective only from 1.4.2010” appears to be rather strange. This gives a message that the petitioner ought to have waited without contributing anything to the revenue, even as a measure of bonafides, till the notification of the Scheme on 1.4.2010 or could have satisfied the liability availing the benefit on the eve of the closure of the Scheme i.e. 30.6.2010. If the version of the respondents is to be accepted, it will lead to a very anomalous situation as follows : Take the case of a person who, on coming to know about Ext. P1 Budget Speech and the Scheme proposed and announced to be effective from 1.4.2010, voluntarily comes forward expressing that he is intending to avail the benefit of the Scheme and effects a portion of the liability seeking to have it set off against the actual amount payable in terms of the Scheme. There may be another case, where a person remaining silent without effecting any payments, files an application after declaration of the Scheme and on getting sanction satisfies the liability on the last date of the Scheme, whereby he could generate funds in the course of his business retaining the entire amount at his hands. Though the former, like the petitioner herein, on announcing the Scheme effected payment of a portion of the liability W.P. (C) No. 18796 of 2010 : 13 : proving the bonafides, thus helping/contributing to the revenue and helps to stabilize the economy of the State, the latter chose to be a defaulter till the last date of the Scheme and effected the payment only on eve of the closure of the Scheme. If the stand of the respondents is to be accepted, it may have to be said that the person who effects a portion of the liability after announcement of the Scheme is being penalized for having effected such payment. This Court does not think that such an anomalous situation is contemplated, intended or sought to be implemented by State/Legislature. More so since, once the Scheme is announced and specified to be commenced from the 1st day of the relevant financial year, for a specified period, it may not be proper for the State/Department to augment the revenue collection by resorting to coercive steps before the defaulters get an opportunity to apply for and obtain the benefit of the Scheme, which otherwise can only defeat or frustrate the Scheme itself and in turn, the 'Policy' of the Government. 15. In the above circumstances, this Court finds that the course pursued by the respondents; issuing Ext. P4 rejecting Ext. P2 preferred by the petitioner seeking the amount deposited as a token of willingness to clear the liability availing the benefit of the Scheme W.P. (C) No. 18796 of 2010 : 14 : proposed in Ext. P1 and consciously appropriating the said amount against 'interest' portion under the cover of Section 55 C, is not correct or sustainable. Accordingly, Ext. P4 is set aside. The respondents are directed to pass fresh orders quantifying the liability of the petitioner, in the application preferred for extending the benefit under the 'Amnesty Scheme', giving credit to a sum of Rs. 75,000/- paid by him vide Ext. P2, as payment towards a portion of the liability under the Scheme, and effect appropriation, in tune with the terms of the Scheme. This shall be finalized and the position shall be let known to the petitioner, as expeditiously as possible, at any rate, within one month, from the date of receipt of a copy of this judgment. It will be open for the petitioner to clear the liability to be re-fixed as above on or before the date of expiry of the Scheme, which is now stated as extended till 30.9.2010. The Writ Petition is allowed. No cost. P. R. RAMACHANDRA MENON, JUDGE kmd