1994 (9) TMI 331 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the appellant can be called a defaulter in payment of tax dues within the meaning of section 13(2) of the Karnataka Sales Tax Act, 1957, for the period from July 27, 1990 to March 4, 1991, during which there was a stay order by the Supreme Court against recovery.
2. Whether the demand notice issued under section 13(2) could result in the appellant being dubbed as a defaulter despite the Supreme Court stay order.
3. Whether the decision of the Division Bench in [1986] 62 STC 418 (Sha Ghelabhai Devji & Co. v. Assistant Commissioner of Commercial Taxes) is distinguishable on facts or requires reconsideration.
4. Whether, in light of the decision in [1965] 16 STC 318 (State of Rajasthan v. Ghasilal), the respondents cannot recover the penalty amount under section 13(2) for the relevant period.

Detailed Analysis:

Issue 1: Appellant as a Defaulter Under Section 13(2)
The appellant, an excise contractor and registered dealer under the Karnataka Sales Tax Act, 1957, challenged the vires of section 6B of the Act. The Supreme Court issued an interim order allowing the authorities to complete assessments and issue demand notices but restrained them from recovery proceedings. The assessment for the year 1985-86 was completed on June 21, 1990, and a demand notice was issued on June 29, 1990. The appellant did not pay the tax within 21 days, citing the Supreme Court's stay order. The Revenue contended that the appellant became a defaulter on July 27, 1990, under section 13(2) of the Act. The court held that the appellant could be considered a defaulter despite the stay order, as the Supreme Court permitted the raising of the demand, which automatically triggered the provisions of section 13(2). The stay order did not prevent the appellant from paying the tax voluntarily to avoid penalties.

Issue 2: Demand Notice and Defaulter Status
The court examined whether the demand notice under section 13(2) could result in the appellant being labeled a defaulter despite the Supreme Court's stay order. It was noted that the stay order only restrained the Revenue from coercive recovery but did not prevent the appellant from paying the tax voluntarily. The court concluded that the appellant took a voluntary risk by not paying the tax, and once the stay was vacated and the appellant lost the case, the penalty under section 13(2) became applicable automatically. Therefore, the appellant was rightly considered a defaulter.

Issue 3: Division Bench Decision in Sha Ghelabhai Devji & Co.
The appellant argued that the Division Bench decision in Sha Ghelabhai Devji & Co. was distinguishable. However, the court found that the ratio of the decision was applicable, as it held that stay orders only postpone liabilities or prevent recoveries but do not destroy the liability created by section 13(2). The court agreed with the Division Bench's view that the liability under section 13(2) operates notwithstanding the interim orders, and the stay operates at the risk of the assessee. The decision did not require reconsideration.

Issue 4: Supreme Court Decision in State of Rajasthan v. Ghasilal
The appellant relied on the Supreme Court decision in State of Rajasthan v. Ghasilal, arguing that the stay order implied no obligation to deposit the tax. The court distinguished this case, noting that in Ghasilal, the tax had not become due as no assessment was made. In the present case, the Supreme Court allowed the assessment and demand to be raised, which meant the tax was due. The stay order did not prevent the appellant from paying the tax voluntarily to avoid penalties. The court concluded that the decision in Ghasilal did not assist the appellant's case, and the penalty under section 13(2) was applicable.

Conclusion:
The court dismissed the writ appeal, holding that the appellant was liable to pay the penalty under section 13(2) of the Karnataka Sales Tax Act, 1957, for the period from July 27, 1990, to March 4, 1991, despite the Supreme Court's stay order against recovery. The appellant's failure to pay the tax voluntarily during the stay period resulted in the automatic application of the penalty provisions.