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Patel Volkart (P.) Ltd. Vs. Commissioner of Commercial Taxes in Karnataka, Bangalore - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKarnataka High Court
Decided On
Case NumberS.T.R.P. No. 64 of 1981
Judge
Reported in[1986]62STC411(Kar)
ActsCentral Sales Tax Act, 1956 - Sections 9(2) and 15; Karnataka Sales Tax Act, 1957 - Sections 5(4), 13, 13(2), 13(2A), 20, 22, 23 and 25A; Uttar Pradesh Trade Tax Act, 1948 - Sections 8(1A)
AppellantPatel Volkart (P.) Ltd.
RespondentCommissioner of Commercial Taxes in Karnataka, Bangalore
Excerpt:
.....have passed an appointment order to a lower post, it will not take away the right of petitioner to claim the higher post. rule 6(4) is not attracted. - the second appeal preferred to the tribunal also failed vide order dated 31st march, 1977, in s. 12. learned counsel for the petitioner, however, placed strong reliance on the ratio of the decision of the supreme court in the case of khemka & co. the ratio of the decision in chockalingam's case [1963]48itr34(sc) is clearly inapplicable to this case. 13. when the rate of penalty is quantified by the section itself and no power is given to the original or appellate authorities, we fail to see the purpose which an appeal could serve, except perhaps, it might help to procrastinate......withheld the payment for a period of 19 months. thereafter the assistant commissioner computed the penalty payable by the petitioner on the amount withheld at the rates prescribed in section 13(2) of the act which came to rs. 46,180.34 and by a notice dated 1st august, 1977 (exhibit a), called upon the petitioner to pay that amount. (vii) it is against that notice, the petitioner preferred an appeal to the deputy commissioner (appeals), hubli. he dismissed the appeal as not maintainable, by his order dated 23rd march, 1978 (exhibit b), and that order was affirmed by the tribunal by its order dated 23rd july, 1978, in second appeal (exhibit c). (viii) aggrieved by these orders, the petitioner has presented this revision petition. 3. relevant part of section 20 of the act reads : '20......
Judgment:

Rama Jois, J.

1. In this revision petition presented under section 23 of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as 'the Act'), the following question of law arises for consideration :

'Whether an assessee, who is a defaulter in the payment of tax due under the Act, and who is called upon by the sales tax authorities to pay the penalty at the rates specified in section 13(2) of the Act, has a right of appeal under section 20 of the Act ?'

The petition has come up for admission after notice to the respondent. By consent of both counsel, the petition is taken up for final hearing and is being disposed of by this final order.

2. Facts of the case :- Briefly stated, the relevant facts as are discernible from the orders of the Deputy Commissioner (Appeals) and the Appellate Tribunal, and the original records produced, are :

(i) The petitioner-company is doing the business of purchase and sale of cotton. During the assessment period 1st September, 1965, to 31st August, 1966, in the course of assessment, the assessing authority had allowed an exemption, on the purchase turnover of Rs. 74,43,877 on the ground that the petitioner had sold cotton of that value in the course of inter-State trade and commerce.

(ii) Section 5(4) of the Act was amended by amending Act 7 of 1973 and the corresponding section 15(b) of the Central Sales Tax Act was amended by amending Act 61 of 1972, with retrospective effect. Earlier, the moment a dealer showed that he had effected inter-State sales, he was entitled to exemption from payment of tax under the Act. According to the amendment, a dealer would get reimbursement of tax paid under the Act on inter-State sales turnover, only in proof of payment of tax under the Central Act.

(iii) As the petitioner had not adduced any proof regarding payment of Central sales tax in respect of the aforesaid turnover of Rs. 74,43,877 the Assistant Commissioner, who was the assessing authority, passed, in the light of the amendment, a rectification order under section 25-A of the Act and levied tax on that turnover.

(iv) The quantum of tax determined as payable on the aforesaid turnover of Rs. 74,43,877 was Rs. 1,07,397.61. A demand notice in the prescribed form was served by the assessing authority on the petitioner on 4th October, 1975, calling upon it to pay the tax within 21 days of the service of notice. The petitioner did not comply with the notice. As a result it became a defaulter on 25th October, 1975.

(v) The appeal preferred against that order was dismissed by the first appellate authority. The second appeal preferred to the Tribunal also failed vide order dated 31st March, 1977, in S.T.A. No. 422 of 1975.

(vi) After the dismissal of the second appeal, the petitioner paid the tax due on 23rd May, 1977. Thus the petitioner had withheld the payment for a period of 19 months. Thereafter the Assistant Commissioner computed the penalty payable by the petitioner on the amount withheld at the rates prescribed in section 13(2) of the Act which came to Rs. 46,180.34 and by a notice dated 1st August, 1977 (exhibit A), called upon the petitioner to pay that amount.

(vii) It is against that notice, the petitioner preferred an appeal to the Deputy Commissioner (Appeals), Hubli. He dismissed the appeal as not maintainable, by his order dated 23rd March, 1978 (exhibit B), and that order was affirmed by the Tribunal by its order dated 23rd July, 1978, in second appeal (exhibit C).

(viii) Aggrieved by these orders, the petitioner has presented this revision petition.

3. Relevant part of section 20 of the Act reads :

'20. Appeals. - (1) Any person objecting to an order affecting him passed under the provisions of this Act by -

(i) an Assistant Commercial Tax Officer, may appeal to the Assistant Commissioner; and

(ii) a Commercial Tax Officer, may appeal to the Deputy Commissioner.'

Sri B. V. Katageri, learned counsel for the petitioner, contends that in view of the plain language of the section an appeal lies against every order made under any of the provisions of the Act and an order made under section 13(2) of the Act calling upon an assessee to pay penalty, is no exception.

4. As against this, Smt. Vanaja, learned High Court Government Pleader, submitted as follows : Section 13(2) requires no order to be passed. The section itself required a defaulting assessee to pay penalty at the rate specified therein. All that the Commercial Tax Officer did in the case, as he was required to do, was to demand the assessee to pay the amount which it was required to pay under section 13(2), to the State. The amount payable under section 13(2) by a defaulter in payment of tax was really interest for the amount withheld. Therefore no order much less an appealable order was required to be made or made by the Commercial Tax Officer.

5. In order to appreciate the rival contentions it is necessary to set out relevant part of section 13. It reads :

'13. Payment and recovery of tax. - (1) The tax under this Act shall be paid in such manner and in such instalments, if any, and within such time, as may be prescribed.

(2) If default is made in making payment in accordance with sub-section (1), -

(i) 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 the tax under this Act; and

(ii) the person or persons liable to pay the tax under this Act shall pay a penalty equal to -

(a) one per cent of the amount of tax remaining unpaid for each month for the first three months, after the expiry of the time prescribed under sub-section (1) and

(b) two and one-half per cent of such amount for each month subsequent to the first three months as aforesaid.

Explanation. - For purposes of clause (ii), the penalty payable for a part of a month shall be proportionately determined.'

The section provides that a defaulter in payment of tax, is liable to pay penalty calculated at the rates specified therein. It goes on increasing day by day and stops on the day when the tax was or is paid. No order is required to be made under the section. In fact no order was made. All that was done was that the assessee was asked to pay the penalty for the period commencing from the date of default, till the date of payment of tax calculated in terms of section 13(2) on the basis of the amount of tax is respect of which it was a defaulter. That being the position, there was no appealable order at all.

6. The learned counsel for the petitioner, however, contends that the notice by which he was called upon to pay the penalty was an order made under section 13(2) of the Act and, therefore, appeal was maintainable under section 20 of the Act.

7. The question, whether section 13(2) of the Act contemplates the passing of an order or not is not res integra. In the case of Sterling Construction & Trading Co. v. Commercial Tax Officer [1973] 32 STC 235 (Mys) the petitioner therein, in a writ petition presented before this Court, prayed for quashing the demand for payment of penalty under section 13(2) of the Act on the ground that no opportunity had been given before calling upon it to pay the same. Rejecting the contention the court said :

'... Where the discretion is given to an authority to fix the amount of fine, it necessarily follows that there should be an order imposing penalty and it also follows that before making such an order the alleged defaulter should be heard in the matter.

The Act gives no discretion to authorities under the Act to waive or reduce the penalty. Obligation is case on the defaulting assessee to make payment of the penalty computed in the manner provided by sub-section (2) of section 13. When no discretion has been left to the respondent to waive or reduce the penalty, no purpose will be served by affording to the petitioners the opportunity of being heard.'

Thus it may be seen the quantum of liability imposed on a defaulter under section 13(2) is definite and invariable. For that reason the Commercial Tax Officer or any other competent officer is not required to pass any order after hearing the defaulter. They can proceed to recover the penalty payable under section 13(2) straightaway. From this it follows, there being no order, question of an appeal under section 20 to the appellate authority and thereafter to the Tribunal under section 22 of the Act does not arise.

8. Then again, there is another Division Bench judgment of this Court in the case of Gopinath v. III Additional Civil Judge (Sales Tax Revision Petition No. 65 of 1978 decided on 7th March, 1980). In that case the legality of the proceedings for the recovery of the penalty payable under section 13(2) of the Act was questioned inter alia on the grounds :

(i) that the levy of penalty had not proceeded by the passing of an order after hearing the defaulter-assessee, and (ii) that is the levy under section 13(2) was penalty it could not be impugned without giving an opportunity of hearing.

Following the ratio of the decision in Sterling Construction Co. [1973] 32 STC 235 (Mys), the Bench held that no such opportunity was needed. Further, relying on the judgment of the Supreme Court in Haji Lal v. State of U.P. : [1974]1SCR25 , the Bench held that though section 13(2) uses the word 'penalty' for the amount payable by a defaulter, at the rates prescribed in that provision, what was really made payable by that provision was the interest on the amount withheld and that the liability was automatic. Relevant portion of the judgment reads :

'Another submission made on behalf of the petitioner was that at least he should have been heard before treating him as a defaulter and fixing the liability under section 13(2) of the Act. The said submission is also untenable in view of the aforesaid decision of the Supreme Court as also the decision of this Court in Sterling Construction & Trading Co.'s case [1973] 32 STC 235. The only difference between Haji Lal's case : [1974]1SCR25 and the present case is that section 8(1-A) of the U.P. Act provided for payment of interest at the prescribed rate during the period of default and under section 13 of the Act, the defaulting assessee is required to pay what is described as penalty at the rates prescribed. Except that the U.P. Act preferred to describe the amount of additional liability imposed for making default in payment of tax, as interest and the Act describes it as penalty, there is no difference. As held by the Supreme Court, the liability to pay interest as required under section 8(1-A) of the U.P. Act was automatic. So also liability to pay penalty under section 13(2) of the Act is automatic. The quantum of penalty is also fixed under section 13(2) of the Act and the Act does not empower any authority to reduce or waive the penalty payable under the said provision under any specified circumstances. Therefore, the question of giving any opportunity to the concerned assessee before deciding as to whether any penalty should be levied or about the quantum of penalty payable does not arise. This was also the view taken by this Court in Sterling Construction & Trading Co.'s case [1973] 32 STC 235.'

Thus the amount payable by a defaulter is really the interest payable on the amount of tax withheld by the defaulter and the rate of interest is fixed by the section itself, there being no power in any of the authorities to diminish or extinguish the liability, no order is required to be made and, therefore, no question of preferring an appeal against an order made under section 13(2) of the Act arises.

9. Learned counsel for the petitioner relied on earlier Division Bench decision of this Court in the case of State of Mysore v. A. Batehumiah Saheb & Co. [1969] 23 STC 515. In that case the Bench held that every order made under any of the provisions of the Act was appealable under section 20. The order which was the subject-matter of appeal was an order imposing penalty, though from the decision it is not possible to say as to whether it was an order made under section 13(2) of the Act. The learned counsel for the petitioner, with reference to the original records of that case, showed that the order involved in that case was an order made under section 13(2) of the Act. He also pointed out that the Tribunal, which distinguished that decision in Batehumiah's case [1969] 23 STC 515 (Mys), relying on Sterling Construction Company's case [1973] 32 STC 235 (Mys) had understood the earlier decision as dealing with the question of appealability against an order made under section 13(2) of the Act.

10. It is no doubt true that the decision in Batehumiah's case [1969] 23 STC 515 (Mys), without more, support the contention of the petitioner. But in that case, the questions, viz. :

(i) Whether an order is required to be made under section 13(2) of the Act

(ii) Whether a notice calling upon a defaulter to pay penalty at the rates prescribed under section 13(2) of the Act, amounts to an order

(iii) Whether the expression 'penalty' used in section 13(2) of the Act really means only interest, does not arise for consideration

Both the parties proceeded on the basis that there was an order imposing penalty. In view of this, the court held that there was an order and it was appealable.

11. All the aforesaid three questions stand answered, as shown earlier, by the two later Division Bench decisions of the Court, the one in the case of Sterling Construction Company [1973] 32 STC 235 and another in the case of Gopinath (Sales Tax Revision Petition No. 65 of 1978 decided on 7th March, 1980) in which the questions directly arose. As the two bases :

(i) That there was an order under section 13(2) and

(ii) That penalty was imposed by such an order, on which the decision proceeded do not really exist, the said decision is of no help to this case.

12. Learned counsel for the petitioner, however, placed strong reliance on the ratio of the decision of the Supreme Court in the case of Khemka & Co. v. State of Maharashtra : [1975]3SCR753 , in which it has an occasion to consider the language of section 13(2) of the Act itself. In that case, the validity of the levy of penalty under section 13(2) of the Act and section 16(4) of the Bombay Sales Tax Act, which was similar to the former, on a defaulter in payment of Central sales tax, invoking section 9(2) of the Central Sales Tax Act, was considered by the Supreme Court. The court pointed out that section 9(2) of the Central Sales Tax Act was only a procedural provision enabling the following of the procedure for recovery of tax prescribed under the sales tax laws of the States, for the recovery of arrears of Central sales tax, that in the absence of provision similar to section 13(2) of the Act or section 16(4) of the Bombay Act in the Central Sales Tax Act there existed no liability to pay the penalty and section 9(2) did not create any such liability. The limited question that was decided in that case was that the liability created under section 13(2) of the Act was a substantive one and in the absence of a corresponding provision in the Central Act, such a liability cannot be foisted on a person, who had defaulted in the payment of Central sales tax taking shelter under section 9(2) of the Central Act which was only a procedural provision. Undoubtedly the liability under section 13(2) of the Act is a substantive one. But the three questions referred to in para 10 supra, which are relevant for the consideration of the question arising for consideration in this case did not arise for consideration that case. Hence the petitioner can derive no support from that decision. That decision has been referred to in the case of Gopinath [Sales Tax Revision Petition No. 65 of 1978 decided on 7th March, 1980 (Karnataka High Court)] and it was observed that it was not on the point.

13. Lastly the learned counsel for the petitioner relied on the decision in M. Chockalingam v. Commissioner of Income-tax : [1963]48ITR34(SC) . The provision of the Income-tax Act dealt with in that case gave discretion to the competent authority to reduce or waive the interest payable by a defaulting assessee under that Act. The Supreme Court held that in such a case opportunity should be afforded to the person concerned before fixing the quantum. Such a question does not arise in this case, as the rate of penalty - which indeed is in the nature of interest payable on the amount withheld - and the liability, is definite and automatic. It is determined by the provision itself and not left to be decided by an authority, having regard to the facts of each case and sufficient cause for default, if any, shown by the defaulter. The appellate authorities also have no power to reduce or waive the amount payable under section 13(2) of the Act. The ratio of the decision in Chockalingam's case : [1963]48ITR34(SC) is clearly inapplicable to this case.

13. When the rate of penalty is quantified by the section itself and no power is given to the original or appellate authorities, we fail to see the purpose which an appeal could serve, except perhaps, it might help to procrastinate.

14. Before concluding, we should point out, that if a person is called upon to pay penalty under section 13(2) of the Act and recovery proceedings are instituted against him and if such person claims that he was not a defaulter or that the computation of the amount was wrong, it is open to him to resist the recovery before the recovery authority on those bases. This is made clear by this Court in Sterling Construction Company's case [1973] 32 STC 235. Relevant portion of the judgment reads :

'If the penalty incurred under section 13(2) of the Act is not paid, the authorities constituted under the Act have to take recovery proceedings in the manner provided under the Act. When such proceedings are initiated against the alleged defaulting assessee, it is open to him to contend that he is not a defaulter or that the amount of penalty sought to be recovered is excessive. If the assessee contends that he is not a defaulter or that the amount claimed is excessive, then the court of the Recovery Officer has to decide whether penalty has been incurred or that the amount claimed is correct.'

Such a question even does not arise in this case as is evident from the facts set out at paragraph 2 of this order, as the factum of default, the date when the petitioner became a defaulter, as also the correctness of the computation of penalty, have not been disputed. In the absence of those infirmities the only remedy in the matter is to seek remission at the hands of the Government under section 13(2-A) of the Act.

15. In the result, we answer the question set out in the first paragraph in the negative, i.e., we hold that no appeal lies under section 20 of the Act against quantification of the penalty payable under section 13(2) of the Act. Accordingly we make the following order :

(i) Revision petition is dismissed.

(ii) No costs.

Smt. Vanaja, High Court Government Pleader, is to file memo of appearance in two weeks.

Rama Jois, J.

16. Immediately after the pronouncement of the order in the above revision petition, learned counsel for the petitioner made an oral application under article 134A of the Constitution for grant of certificate of fitness to appeal to the Supreme Court against the order, under article 133 of the Constitution.

In our opinion, no substantial question of law which requires to be decided by the Supreme Court arises for consideration out of our order. The application is therefore rejected.


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