IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE K.T.SANKARAN MONDAY, THE 7TH 2008 / 18TH CHAITHRA 1930 ST.Rev..No. 339 of 2003 ------------------------------- TA.543/2002 of S.T.A.TRIBUNAL,ADDL.BENCH-II,ERNAKULAM. .................... REVISION PETITIONER/(Respondent/Assessee): --------------------------------- M/s. Chandramani Traders, Aluva, Ernakulam District, represented by Sreejaya M.Anand, Partner. By Advs. M/s.Arikkat Vijayan Menon, Harishankar V.Menon, Meera V.Menon. RESPONDENTS/Appellant/Revenue): ---------------------- State of Kerala. By Sr.Government Pleader Sri.Muhammed Rafiq This Sales Tax Revision having been finally heard on 26/9/2007, the court on 07/04/2008 passed the following: H.L. DATTU, C.J. & K.T.SANKARAN, J. ------------------------------------- S.T.Rev. No.339 of 2003 ------------------------------------ Dated this, the 7th day of April, 2008 ORDER H.L. DATTU, C.J. In this tax revision case filed by the assessee against the order passed by the Sales Tax Appellate Tribunal in T.A. No.543 of 2002 dated 20.3.2003, for the assessment year 1997-98, the following two questions of law are raised for our consideration and decision. They are:- i. Whether on the facts and circumstances of the case, has not the Appellate Tribunal gone wrong in finding that the revision petitioner is liable to interest with reference to the due date of filing the returns as held by the assessing authority? ii. Is it not the order of the Tribunal is against the decision of the Supreme Court in Maruthi Wire Industries (P) Ltd. vs. Sales Tax Officer, 2001 (2) KLT 100? 2. The questions of law framed by the assessee can be reframed as under:- (i) Whether on the facts and circumstances of the case, interest is chargeable under Section 23(3) of K.G.S.T. Act, 1963 from the date of filing of the return admitting the tax liability, but claiming concessional rate of tax or from the date of assessment and issuance of demand notice in pursuance thereof? 3. The factual matrix in nutshell are: The assessee is a partnership firm and a dealer registered under the provisions of the Kerala General Sales Tax Act, 1963 (hereinafter referred to as the Act, 1963). It is engaged in the trading of chemicals and S.T.Rev. No.339 of 2003 - 2 - drugs and an assessee for sales tax on the rolls of Sales Tax Officer, Aluva. 4. Petitioner is opting and paying tax by self assessment in accordance with Section 17(1) of K.G.S.T. Act read with the rules framed thereunder. The assessee had filed monthly and annual returns for the assessment year 1997-98, disclosing the turnover in chemicals and drugs for an amount of Rs.18,38,419.50 to various industrial units. In the returns filed, the petitioner has shown this turnover as taxable as provided under Section 5 (3) of K.G.S.T. Act. It is not in dispute nor it is disputed by the Revenue that the petitioner has collected tax at 3% from the purchasing industrial units and the collected tax is also remitted before the assessing authority. Section 5(3) of the Act provides for the concessional rate of tax of 3% on the sales of industrial raw materials etc. to industrial units, provided the selling dealer produces declaration in Form No.18 prescribed under K.G.S.T. Rules issued by the purchasing industrial unit before the assessing authority. During the relevant assessment year, the assessee had effected sales of industrial raw materials etc. for an amount of Rs.18,38,419.50 to various industrial units, but was able to procure Form No.18 declarations for Rs.14,52,891/- only from various purchasing industrial units. For the balance turnover, the petitioner could not collect Form No.18 declarations, since many of purchasing industrial units had closed their business units. Since the assessee had failed to produce those declaration forms, the assessing authority while quantifying the tax liability for the assessment year 1997-98 has granted the concessional rate of 3% tax only on the turnover covered by Form No.18 declarations and has levied tax at the rate specified in the schedule for the balance turnover and also has imposed interest under Section 23(3) of the Act. 5. The assessee being aggrieved by the levy of interest by the S.T.Rev. No.339 of 2003 - 3 - assessing authority had filed first appeal before the first appellate authority in S.T.A.No.1561 of 2001, who by his order dated 31.5.2002 had allowed the appeal in part and further had directed the assessing authority to calculate the interest payable by the assessee in the light of the law laid down by the Apex Court in Maruthi Wire Industries' case, 2001 (2) KLT 100. 6. The Revenue being aggrieved by the order passed by the first appellate authority had preferred second appeal in T.A.No.543 of 2002 before the Kerala Sales Tax Appellate Tribunal, Additional Bench II, Ernakulam, inter alia contending that the assessee is liable to pay interest from the due date of filing of the return and the decision of the Apex Court in Maruthi Wire Industries case is distinguishable on facts, since the case considered by the Apex Court was one where no return itself was filed by the assessee. 7. The Appellate Tribunal by its order dated 20.3.2002 has allowed the Revenue's appeal, holding that, the first appellate authority is not justified in directing the assessing authority to reconsider the levy of interest in the light of the observations made by the Apex Court in Maruthi Wire Industries' case. The correctness or otherwise of the order passed by the Tribunal is the subject matter of this revision petition. 8. We have heard Sri. Harisankar V.Menon, leaned counsel appearing for the assessee and Sri.Mohammed Rafiq, learned Government Pleader for Taxes. The contentions canvassed and the decisions relied on in support of their case will be noticed by us at the appropriate stage in our judgment. 9. Section 5 of the Act is the charging provision. It provides for levy of tax on sale or purchase of goods. Sub-section (1) of Section of the Act, envisages that every dealer, other than a casual trader or agent of a S.T.Rev. No.339 of 2003 - 4 - non-resident, whose total turnover for a year is not less than Two Lakhs of rupees and every casual trader or agent of non-resident dealer, whatever be his total turnover for the year shall pay tax on his taxable turnover for that year. Clause (i) of sub-section (1) of Section 5 of the Act provides for the levy of tax in the case of goods specified in the First or Second Schedule, at the rates and only at the points specified against such goods in the said Schedules. The only other Section which is relevant for the purpose of the case is sub-section (3) of Section 5 of the Act. The said sub-section is as under:- 5(3): (i) Notwithstanding anything contained in sub-section (1), the tax payable by a dealer in respect of any sale of industrial raw materials, component parts, containers or packing materials which are liable to tax at a rate higher than three per cent when sold to any industrial unit for use in the production of finished products inside the State for the sale or for packing of such finished products inside the State for sale, as the case may be, shall be at the rate of three per cent on the taxable turnover relating to such industrial raw materials, component parts, containers or packing materials, as the case may be. Provided that the provisions of this clause shall not apply to any sale unless the dealer selling the goods furnishes to the assessing authority in the prescribed manner a declaration duly filled in and signed by the dealer to whom the goods are sold containing the prescribed particulars in the prescribed form. (ii) Where any dealer, after purchasing any goods by furnishing a declaration as mentioned in the proviso to clause (i) fails to make use of the same for the purpose for which the declaration was furnished, he shall be liable to pay the tax that would have been payable by him, had the declaration not been furnished, less the tax, if any, S.T.Rev. No.339 of 2003 - 5 - paid by him and the same shall be levied and collected as if it is a tax due from him.”. 10. Sub-section (3) commences with a non-obstante clause. The purpose is to exclude sub-section (1) of Section 5 of the Act for the purpose of sub-section (3) of the Act. Under this sub-section, a dealer engaged in trading of industrial raw materials, component parts, etc., which are liable to tax at a higher rate than three per cent, when it is sold to industrial units for use in the production of finished products inside the State for sale, shall be at the rate of three per cent on the taxable turnover relating to such industrial raw materials, component parts etc. In sum and substance, sub-section (3) of Section 5 of the Act provides concessional rate of tax of 3% on the sale of industrial raw materials, etc. to an industrial unit in the State for a particular purpose. The proviso appended to the sub-section carves out an exception to the sub-section for getting this reduced rate of tax;. For getting the benefit of sub-section (3) of Section 5, the selling dealer has to produce a declaration Form No.18 as prescribed in the KGST Rules, issued by the purchasing dealer. The other clause in sub-section (3) of Section 5 of the Act is not relevant for the purpose of the case and therefore, the same is not noticed. 11. Chapter V of the KGST Act provides for assessment, collection and penalty. This Chapter contains machinery and procedural provisions for the purpose of charging provisions. Section 16 of the Act, provides for assessment, levy and collection of tax as provided in the KGST Rules. Under Section 17 of the Act, every registered dealer and every dealer liable to take out registration under the Act, shall submit such return or returns in the prescribed manner within the prescribed time as provided in the rules. S.T.Rev. No.339 of 2003 - 6 - Under sub-section (2), if the assessing authority is satisfied that the return submitted by the dealer is correct and complete, he shall assess the dealer on the basis of the return filed by the dealer under sub-section (3) of the Act. If the assessee fails to submit its return as required under sub-section (1) or if the return submitted by the dealer appears to the assessing authority either incorrect or incomplete, and after making such enquiry as he may consider necessary pass best judgment assessment. Sub-section (4) of Section 17 of the Act provides for summary assessments in the case of prescribed class of dealers. Sub-section (6) provides for limitation within which assessment under this section requires to be completed. The other sub-sections may not be relevant for the purpose of this case. 12. Rule 18(1) of the Rules provides for filing of annual returns and final assessment. The sub-rule(1) provides for filing of annual returns by every dealer liable to pay tax under the Act, irrespective of the quantum of his total turnover, on or before the first day of May of every year a return in Form No. 9 showing the total and taxable turnover for the preceding year, the amounts by way of tax or taxes due on the taxable turnover during the year. Rule 18(2) provides for filing of returns in the case of a dealer who discontinues business during the course of the year. Rule 18(2A) provides for filing of revised return, if any dealer after filing of the return under sub-rule(1) finds that a mistake has crept in the return filed. Sub-rule (3) mandates that every dealer liable to submit a return shall along with the return produce proof for having paid the full amount of tax or taxes due for the year on the basis of the return or taxes collected by him, whichever is higher before the assessing authority. Sub-rule (4) provides that if the assessing authority on receipt of the return, if he is satisfied that the return is correct and complete, finally assess on the S.T.Rev. No.339 of 2003 - 7 - basis of the returns filed, the tax or taxes payable under Section 5 or the taxable payable under the notification issued under Section 10 for the year to which the return relates. Sub-rule(5) provides the procedure for best judgment assessment, if the return filed for the year to which return relate is either incorrect or incomplete. Rule 20 speaks of adjustment after final assessment. The assessing authority under this rule is authorised after passing order under sub-rules (4) or (5) of Rule 18, to examine whether any and if so, what amount is due from the dealer towards the final assessment after deducting the tax paid if any on the provisional assessment with reference to Rule 21 or at the time of submission of the return in Form 8 with reference to sub-rule (3) of Rule 18. If any amounts are due from the dealer towards the final assessment, he shall serve on the dealer a demand notice specifying the amounts due and the dealer shall pay the sum demanded within the time and in the manner specified in the notice. The sub-rule also provides for refund of the tax already paid, if in the final assessment the dealer has paid more than the tax assessed. Rule 21 has undergone several amendments and several sub-rules in fact are deleted from the statute. The rule now available is sub-rule (7) of Rule 21, which provides for filing of monthly returns by a dealer registered or liable to be registered under the provisions of the Act on or before 10th and in some cases 15th of succeeding month. Under sub-Rule (9), the assessing authority is empowered to pass the best judgment assessment provisionally, if the return submitted by the dealer appears to be incorrect or incomplete or if no return is submitted by the dealer or where the return is submitted without the statements/certificates/ documents required to be filed as per sub-rule (7AA) or any other rules and shall serve upon the dealer a notice in Form 13 and the dealer shall pay the sums demanded within the time and S.T.Rev. No.339 of 2003 - 8 - the manner prescribed in the rules. Under sub-rule (10) if the return submitted by the dealer is without the necessary proof for having paid the admitted tax, or the full amount of tax payable under the Act, the assessing authority is authorised to serve upon the dealer a demand notice for payment of tax due under the Act and the dealer shall pay the amount demanded within the time and manner prescribed under the rules. The other sub-rules as we understand may not be relevant for the purpose of the case. We have extracted the machinery provisions and the relevant rules only to demonstrate several procedures prescribed under the Act and the rules framed therein which casts an obligation on the registered dealer and the dealer liable to be registered under the Act, the necessity and if we say so, more of obligation and duty to file true and complete monthly returns and annual returns along with the proof of evidence of having paid the admitted tax due under the Act. 13. Rule 28 of the Rules provides for declaration required for the purpose of Section 5(3) of the Act. The rules provides that the declaration provided under the aforesaid sub-section shall be in Form No.18. Sub-rule (5) says that a dealer who claims that a sale is liable to tax under sub-section (3) of Section 5 shall attach to his return of turnover, a declaration received by him from the purchasing dealer. 14. Section 23 of the Act provides for payment and recovery of tax. This section envisages that the tax assessed or any amount demanded under the Act shall be paid as may be specified in the notice of demand within twenty one days from the service of demand notice. If there is any default in complying with the demand notice, the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay tax or other amounts due S.T.Rev. No.339 of 2003 - 9 - under the Act. Sub-section (2) speaks of mode of recovery of tax assessed or any other amount due under the Act. Sub-section (3) of Section 23 of the Act is relevant for the purpose of this case and therefore the same is extracted and it reads as under:- “23(3). If the tax or any other amount assessed or due under this Act is not paid by any dealer or other person within the time prescribed therefor, in this Act or in any rule made thereunder and in other cases within the time specified therefor in the notice of demand, the dealer or other person shall pay, by way of interest, in the manner prescribed, in addition to the amount due, a sum equal to,- (a) one per cent of such amount for each or part thereof for the first three months after the date specified for its payment; (b) two per cent of such amount for each month or part thereof subsequent to the first three months aforesaid; Explanation:- Where the period of default is less than one month, interest shall be calculated for the actual number of days of default.”. 15. The analysis of this sub-section is as under:- The dealer or other person shall pay by way of interest, in addition to the amount due, a sum equal to two per cent of such amount for each month or part thereof subsequent to the first three months aforesaid. i. if the “tax assessed” is not paid by any dealer or other person within the time prescribed under the Act or the rules framed. ii. if any “other amount assessed” is not paid by any dealer or other person within the time prescribed under the Act or the rules framed. iii. if the “tax due under the Act is not paid by any dealer within the time S.T.Rev. No.339 of 2003 - 10 - prescribed under the Act or the rules framed. iv. “in other cases” within the time specified therefor in the notice of demand. 16. If the period of default is less than one month, interest is calculated for the actual number of days of default. 17. We will come back to Section 23(3) of the Act once again a little later. To complete the narration of facts, we will also notice Section 45A of the Act, which provides for imposition of penalty by the authorities notified in the section for the offences enumerated under clauses (a) to (h), an amount not exceeding twice the amount of sales tax or other amount evaded or sought to be evaded when it can be quantified, and in other cases ten thousand rupees. One of the clauses in Section 45A of the Act that provides for levy of penalty is, if the dealer or other persons files an untrue or incorrect return. 18. Having seen the relevant provisions of the Act and the rules framed thereunder, now let us revert back to the factual matrix of this case. Petitioner has filed their monthly and annual returns by way of self assessments in accordance with Section 17(1) of the Act read with rules framed thereunder for the assessment year 1997-98, disclosing the turnover in chemicals and drugs for an amount of Rs.18,38,419.50 to various industrial units. In the returns filed, the petitioner has shown this turnover as taxable at 3% as provided under Section 5(3) of the Act. It is not in dispute that the petitioner has collected tax at 3% from the purchasing industrial units and collected tax also is remitted before the assessing authority. To claim concessional rate of tax under Section 5(3) of the Act, the selling dealer has to collect declaration in Form No.18 as provided under the KGST Rules from the purchasing industrial units and file it along with its returns before the assessing S.T.Rev. No.339 of 2003 - 11 - authority. Since the assessee failed to produce the declaration forms for part of the turnover declared in the returns filed, the assessing authority while quantifying the tax liability, has levied higher rate of tax as provided in the Schedule to the Act and also has levied interest under Section 23 (3) of the Act, on the ground that the assessee has failed to remit tax due under the Act in the manner prescribed under the Act. 19. Learned counsel Sri.Harishankar V.Menon would contend, that, the interest under sub-section (3) of Section 23 of the Act could be levied by the assessing authority, only, when the assessee defaults in paying the tax due under the Act after the same is quantified by the assessing authority and after service of demand notice thereof within the time prescribed under the Act. The learned counsel would further contend that, in the present case, immediately after quantification of tax liability and service of demand notice for payment of assessed tax by the assessing authority, the assessee has remitted the entire tax demanded and therefore, the assessing authority was not justified in levying and demanding payment of interest under Section 23(3) of the Act. The learned counsel would further contend that the interpretation given by the Tribunal on Maruthi Wire Industries case does not reflect the correct position in law. Alternatively, it is contended that the interest levied by the assessing authority is highly illegal, improper and contrary to the statutory provisions. In aid of his submission, learned counsel mainly relies on the observations made by the Apex Court in Maruthi Wire Industries (P) Ltd. vs. Sales Tax Officer (2001) 2 KLT 100 (SC), and a decision of this Court in Protech Appliance (P) Ltd., vs. Asst. Commissioner, 127 STC 322. The learned counsel, to explain the meaning of the expression 'tax assessed' and 'tax due' under the Act, has placed heavy reliance on the observations made by S.T.Rev. No.339 of 2003 - 12 - the Apex Court in the case of J.K.Synthetics vs. Commercial Tax Officer, (1994) 94 STC 422, wherein the Court has affirmed the minority view expressed by Justice Bhagawati, as he then was, in Associated Cement Co. vs. Commercial Tax Officer, (1981) 48 STC 466. The other decision on which reliance is placed by the learned counsel are P.K.Damodaran vs. State of Kerala, (2004) 138 STC 442, Evershine Plastics vs. Asst. Commissioner (2000) 120 STC 396, P.K.Alihaji vs. Board of Revenue, (2007) 15 KTR 101, State of Rajasthan vs. Ghasilal (1965) 16 STC 318, M.A. and Co. vs. Asst. Commissioner, (1964) 15 STC 487. 20. Sri. Mohammed Rafiq, learned Government Pleader for Taxes would contend, that though the petitioner had disclosed the turnover by filing monthly and annual returns, petitioner had not paid the tax payable under the Act, but had paid only concessional rate of tax on the disclosed/conceded turnover, solely on the ground that he is unable to collect declaration Form No.18 from the purchasing dealer. According to the learned counsel, the petitioner had to pay admitted tax as provided under the Act and the rules framed thereunder, in default of which the assesee has to pay interest as provided under the Act. It is further stated that the liability to pay interest under Section 23(3) of the Act is automatic and the condition precedent for levy of interest under sub-section (3) is default in payment of tax admittedly due to the Department. 21. The State is empowered by the legislature to raise revenue through the mode prescribed under the Act, so that the State should not be the sufferer on account of the delay caused by the tax payer in payment of tax due. The provision for charging interest is possibly introduced by the State S.T.Rev. No.339 of 2003 - 13 - Legislature in order to compensate the revenue for the loss