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2016 (2) TMI 282 - KARNATAKA HIGH COURT

2016 (2) TMI 282 - KARNATAKA HIGH COURT - TMI - Doctrine of promissory estoppel - Continuity of exemption after migration from sales tax regime to VAT regime - tax holiday of ten years - KST to KVAT - exemption from CST - Information Technology Policy of the State Government - It is true that in the notification dated 21.8.1997 issued under the KST Act, there was a specific condition that if the Unit (exercising the option for tax exemption) collects any tax, it shall become ineligible for tax e .....

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away with.

The notification providing for such ineligibility was under the KST Act, which was followed in the case of CST Act up to 31.3.2005. When the subsequent notification dated 18.4.2005 (effective from 1.4.2005) issued under the KVAT Act itself provides for collection of tax, and such benefit of exemption is granted for Karnataka Value Added Tax even when the assessee collects tax, then the same cannot be denied to the same assessee under the CST Act, as admittedly, the procedur .....

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rocedure for the same is to be construed liberally in favour of, and for the benefit of the assessee. In the present case, the petitioner is admittedly eligible for grant of exemption. As such, the petitioner cannot be denied the benefit on technical grounds. - Decided in favor of assessee. - STRPs 54/2014, 279-324 / 2014 - Dated:- 5-10-2015 - MR. VINEET SARAN AND MRS. S. SUJATHA, JJ. For The Petitioner : Sri. K P Kumar, Sr. Counsel a/w Sri. V S Arbatti, Adv. For The Respondent : Sri K M Shivayo .....

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Sales Tax, 1956 (CST Act for short). Under the Information Technology Policy of the State Government, two notifications were issued, both dated 21.8.1997 - one under the Karnataka Sales Tax Act, 1957 (KST Act for short) and the other under the CST Act. Under the policy of the State Government, a tax holiday of ten years was to be granted to Information Technology Units from the date of commencement of commercial production. The petitioner company has admittedly been granted the eligibility cert .....

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to be adopted for the CST Act also and thus, by the notification of the same date i.e., 21.8.1997 issued under the CST Act, petitioner company was entitled to exemption under the CST Act by following the procedure provided in the KST notification. There is no dispute that the petitioner company was subjected to Karnataka Sales Tax for sales within the State of Karnataka and for Inter-State sales, Central Sales Tax was leviable. The procedure adopted for implementation of the notifications for b .....

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payable was to be paid to the State Government and thereafter refunded to the Unit. From the same, it is clear that the output tax had to be first collected by the assessee and after deducting the input tax paid by the assessee, the net tax was to be deposited by the assessee with the Government, which was to be refunded. This would clearly mean that the provision in the earlier notification dated 21.8.1997 providing for ineligibility of a Unit from exemption in case tax was collected by it, wo .....

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ific procedure prescribed under the subsequent notification dated 18.4.2005 issued under the CST Act. There is no dispute with regard to the eligibility of the petitioner for exemption from tax, either under the KST Act or CST Act. The dispute did not arise even after the issuance of the notification dated 18.4.2005, because for the purpose of the KVAT Act as well as CST Act, the assessee started following the procedure as was prescribed in the notification dated 18.4.2005 relating to KVAT Act, .....

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h was duly allowed to the assessee in both the cases i.e., under the KVAT Act, as well as CST Act. With effect from the tax period 1.4.2007, the benefit of payment of tax and thereafter claiming refund was continued to be allowed to the assessee under the KVAT Act, but was denied to it under the CST Act, primarily on the ground of the condition in the earlier notification dated 21.8.1997 issued under the KST Act, which provided that if the Unit collects any amount by way of tax, it shall become .....

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he KVAT Act, a demand was raised from the petitioner assessee to deposit the amount which was refunded to it during the aforesaid period, which was by way of an order passed by the Assessing Officer on 8.4.2009. For the tax period after 1.4.2007, the net tax, which the assessee claimed to be refunded/payable to it, was forfeited. The petitioner assessee, thereafter, filed appeals against the orders requiring it to deposit the refunded tax amount, as well as for non-refund of the net tax which th .....

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ner, as well as Sri K M Shivayogiswamy, learned Government Advocate appearing for the respondent, and perused the record. Although these petitions were admitted on two questions of law, but learned counsel for both the parties have stated that the only question required to be answered in these petitions, would be the following: Whether the Tribunal below is justified in coming to a conclusion that petitioner is not entitled to collect CST and consequently not entitled to the tax refund mechanism .....

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which was provided under the KST Act earlier, and thereafter, under the KVAT Act. It has been submitted that the condition that in case the Unit collects tax, it would become ineligible for grant of exemption as provided in the notification dated 21.8.1997 under the KST Act, was applicable for both i.e., the Karnataka Sales Tax as well as the Central Sales Tax, up to 2005 and thereafter, with effect from 1.4.2005, when the notification dated 18.4.2005 issued under the KVAT Act itself provided fo .....

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der Section 20 of the KVAT Act, provision was made with regard to deduction of input tax on export and inter-State sales. The submission, thus, is that since by virtue of sub-section (2) of Section 9 of the CST Act, the procedure prescribed for assessment, re-assessment, collection, etc., of Central Sales Tax was to be as per the KVAT Act (earlier KST Act) and in the said Act, the procedure for Inter-State sales had also been provided for, and the notification dated 18.4.2005 issued in the case .....

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ocedure had to be followed, but it is contended that even the Department accepted the returns of the petitioner assessee for the tax period 1.4.2005 to 31.3.2007 and had allowed refund as claimed under the said procedure, both under the KVAT Act as well as CST Act. Learned counsel has thus submitted that the denial of refund of Central Sales Tax after 1.4.2005, merely on the ground that the Unit would become ineligible in case it had collected tax, and solely on the ground that such was the cond .....

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ter 1.4.2005, as exemption itself contemplates that there would be no collection or payment of tax. He has, thus, justified the passing of the order of the Tribunal, as well as the authorities below, whereby the petitioner assessee has been directed to deposit the amount of tax refunded to it for the tax period 1.4.2005 to 31.3.2007, and also the order denying the benefit refunded to the assessee after 1.4.2007. The relevant extracts of the two notifications dated 21.8.1997 and the other two not .....

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19-C of the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957) read with sub-section (2) of the Central Sales Tax Act, 1956 (Central Act 74 of 1956), the Government of Karnataka, hereby - (i) exempts the tax payable under the said Central Sales Tax Act, 1956 in respect of goods manufactured and sold in the course of inter-State trade or commerce by new Information Technology Industrial Units which are eligible and opted for tax exemption under Notification No. FD 57 CSL 97(1), dated 21.8. .....

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rnment of Karnataka hereby exempts with effect from the first day of April, 2005, the net tax payable by a new industrial unit under the said Act, on the sale of goods manufactured by it, subject to the following conditions and procedure, namely- (1) The industrial unit is eligible for tax exemption on sale of goods manufactured by it, under the notification issued by the Government under the provisions of the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957). (2) The tax exemption extend .....

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t shall be refunded, such net tax paid within thirty five days after the end of the month to which the return relates, if it is furnished within the time specified under Section 35 of the said Act or within fifteen days from the date of filing of the return, if it is filed after the time specified, in the manner prescribed under the said Act by the jurisdictional authority and interest shall be paid for any delay in the refund, as specified under the said Act. 5) ....... (6) ...... (7) ...... (8 .....

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exemption availed by the units under the notifications issued under the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957) together with the quantum of tax exemption availed under the notifications issued under (sub-section (5) of Sec. 8 of the Central Sales Tax Act, 1956) shall not exceed the ceiling mentioned in the notifications issued under the Karnataka Sales Tax Act, 1957. Whereas, Karnataka Sales Tax Act, 1957 has been replaced by Karnataka Value Added Tax Act, 2003 (Karnataka Act 3 .....

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that the aggregate of any tax exemption availed by the units under such notifications together with the quantum of tax exemption availed under any notification issued under the Karnataka Value Added Tax Act, 2003 shall not exceed the ceiling mentioned in the notifications issued under the Karnataka Sales Tax Act, 1957." The relevant Section 10 sub-clauses (1) to (3) and Section 20 (1) of the KVAT Act, 2003, are reproduced below: S:10 Output tax, input tax and net tax (1) Output tax in relat .....

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the sale to him of any goods for use in the course of his business, and includes the tax on the sale of goods to his agent who purchases such goods on his behalf subject to the manner as may be prescribed to claim input tax in such cases. (3) Subject to input tax restriction specified in Sections 11,12,14, 17, 18 and 19, the net tax payable by a registered dealer in respect of each tax period shall be the amount of output tax payable by him in that period less the input tax deductible by him as .....

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any goods sold in the course of export out of the territory of India, or (b) any goods taxable under the Act, sold in the course of inter-State trade or commerce; shall be deducted as provided under Section 10, subject to such conditions as may be prescribed from output tax payable by such dealer." The relevant sub-section (2) of Section 9 of the CST Act is reproduced below: S:9 Levy and collection of tax and penalties - (1) ......... (2) Subject to the other provisions of this Act and the .....

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w of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law including provisions relating to returns, provisional assessment, advance payment of tax, registration of the transferee of any business, imposition of tax liability of a person carrying on business on the transferee of, or successor to, such business, transfer of liability of any firm or Hindu undivided family to pay tax in the ev .....

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any of the matter specified in this sub-section." The sole ground for denying the benefit to the assessee under the CST Act after 1.4.2005 by the authorities below is that it had become ineligible, as it had collected tax and then claimed refund. From a perusal of the two notifications dated 21.8.1997 and the other two notifications dated 18.4.2005, it would be clear that the procedure for grant of exemption had undergone a sea change after 1.4.2005. Earlier it was provided that the tax wo .....

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the Unit (exercising the option for tax exemption) collects any tax, it shall become ineligible for tax exemption. But the same was applicable only up to 1.4.2005. If such condition was to continue after 1.4.2005, then the procedure for grant of exemption, which was provided in the notification dated 18.4.2005 under the KVAT Act, which was that the output tax is to be collected and input tax is to be deducted, and net tax has to be paid, then only the net tax paid would be refunded, would clearl .....

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the same cannot be denied to the same assessee under the CST Act, as admittedly, the procedure provided under the general sales tax law of the State (which presently would be KVAT Act), would be applicable for the purpose of Central Sales Tax, but the substantive provisions of the CST Act were to be followed. In view of the aforesaid, in the facts of the present cases, the finding given by the Tribunal with regard to ineligibility of the assessee/petitioner for being granted exemption only beca .....

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the notifications in the same manner as had been understood by the assessee. The subsequent revision by the Joint Commissioner, by invoking the provisions of Section 63A of the KVAT Act, only for the purpose of CST Act on the ground that assessee had collected tax, cannot be justified, in as much as the same benefit had been granted, and is being continued to be granted, to the assessee after 1.4.2005 in the case of KVAT Act. As we have already noted above, the procedure under the KVAT Act was .....

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