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2016 (11) TMI 215 - GUJARAT HIGH COURT

2016 (11) TMI 215 - GUJARAT HIGH COURT - TMI - Interest on refund - Article 14 of the Constitution of India - Writ of mandamus - Period of limitation - Held that: - Clause (aa) to sub section (1) of Section 54 of the GST Act was inserted by the Gujarat Act 11 of 1993 - under the said provision a dealer entitled to refund by virtue of an order of assessment would receive in addition to such amount, simple interest at the specified rate to be calculated from the date immediately following the date .....

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from those which are left out of such class and that the same is based on rational relation to the object sought to be achieved by the law - When the legislature frames a new provision which either creates or extinguishes existing rights, there is invariable requirement of making such a provision applicable from a certain date. - Regarding Interest - When the Assessing Officer wanted to tax the petitioner by denying the set off on tax paid on purchase of raw materials for manufacture of good .....

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nal and compel the assessee to go in appeal. - The Tribunal in view of the fact that the first appellate authority had proceeded ex parte merely remanded the proceedings before the first appellate authority for fresh consideration and disposal - Not on the ground that interest, as a matter of course, must be paid on the principal of compensatory basis, in the present case, we are inclined to grant such interest on the ground that the department had unauthorizedly and illegally for nearly th .....

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015 - Dated:- 20-10-2016 - Akil Kureshi And A. J. Shastri, JJ. Mr Uchit N Sheth, Advocate for the Petitioner Mr Kamal Trivedi, Adv. Gen With Mr. Pranav Trivedi, for the Respondent JUDGMENT ( Per : Honourable Mr. Justice Akil Kureshi ) 1. In this petition the petitioner has prayed for following reliefs : A. This Hon'ble Court may be pleased to declare that the phrase for the specified year in Section 54(1)(aa) o the Sales Tax Act is discriminatory, arbitrary and violating Article 14 of the Co .....

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stered under the Multi State Cooperative Societies Act,2002 and would be hereinafter to be referred to as the petitioner-society. The petitioner-society is engaged in manufacture and sale of fertilizers and is registered under the State as well as the Central Sales Tax Acts. The manufacturing unit of the petitioner-society at Kandla was holding sales tax exemption certificate. By virtue of this, the petitioner would claim set off on tax paid on purchase of raw materials on goods sold within as w .....

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hat this issue is sub judice. By an order dated 28.06.1980, he rejected the petitioner's claim ironically leaving the liberty open to the petitioner to agitate the issue further. 4. The petitioner filed appeals before the first appellate authority against such order of the Assessing authority on or around 02.08.1980. For no apparent reason, these appeals remained pending for years together. The appellate authority ultimately by an order dated 26.02.2004 rejected such appeals. The petitioner .....

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condoned the delay and proceeded to hear the appeals on merits. The Tribunal noted that the appeals which were filed on 02.06.1980 were disposed of by an order dated 26.02.2004 without serving the notice of hearing to the petitioner. The appeals were, thus, disposed of without any opportunity of hearing to the petitioners. The Tribunal, therefore, allowed the appeals, set aside the first appellate orders and remanded the proceedings before the first appellate authority for fresh disposal. 5. In .....

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titled to receive refund for the year 1974-75 of ₹ 3,94,287/- as per the appellate order. Similar separate orders were passed for other years as well. The total of such refund comes to ₹ 21,34,103/-. The petitioner noticed that in such order, the appellate authority had not given credit of ₹ 2,67,344/- paid by the petitioner against an earlier demand notice. The petitioner, therefore, applied for rectification of such order. The appellate authority passed an order dated 24.02.2 .....

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e to grant such refund since in terms of Section 54(1)(aa) of the Gujarat Sales Tax Act ['the GST Act' for short], such interest would be available only in case of refund arising out of assessment orders passed for the years 1993-94 and onwards. The petitioner, therefore, withdrew the appeals before the Tribunal on 16.06.2015 and filed the present petition. In this petition, as noted, the petitioner has prayed for two reliefs. One is for declaring that Section 54(1)(aa) of the GST Act is .....

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granting such interest on the principal of compensation for wrongly withholding the petitioner's amount, interest should be paid. 6. Drawing our attention to Section 54(1)(aa) of the GST Act counsel submitted that such provision lays down an artificial cut off date for grant of interest. There is no basis for such cut off date which is chosen wholly arbitrarily. The said provision insofar as it denies interest for the period prior to 01.04.1993 is violative of Article 14 of the Constitution .....

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er establish- (a) that a law may be constitutional even though it relates to a single individual if, on account of some special circumstances or reasons applicable to him and not applicable to others, that single individual may be treated as a class by himself; (b) that there is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles; (c) that it must be pr .....

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nowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation; and (f) that while good faith and knowledge of the existing conditions on the part of a legislature are to be presumed, if there is nothing on the face of the law or the surrounding circumstances brought to the notice of the court on which the classification may reasonably be regarded as based, the presumption of constitutionality cannot be .....

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orted in AIR 1961 SC 552 in which, it was observed as under: 7. The most important question that arises for consideration in these cases, in view of the stand taken by the State of Kerala, is whether Art. 265 of the Constitution is a complete answer to the attack against the constitutionality of the Act. It is, therefore, necessary to consider the scope and effect of that Article. Article 265 imposes a limitation on the taxing power of the State in so far as it provides that the State shall not .....

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visaged by Art. 13(2) is that the Legislature shall not make any law which takes away or abridges the equality clause in Art. 14, which enjoins the State not to deny to any person equality before the law or the equal protection of the laws of the country. It cannot be disputed that if the Act infringes the provisions of Art. 14 of the Constitution, it must be struck down as unconstitutional. For the purpose of these cases, we shall assume that the State Legislature had the necessary competence t .....

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n, generally speaking, imposes a similar burden on every one with reference to that particular kind and extent of property, on the same basis of taxation, the law shall not be, open to attack on the ground of inequality, even though the result of the taxation may be that the total burden on different persons may be unequal. Hence, if the Legislature has classified persons or properties into different categories, which are subjected to different rates of taxation with reference to income or prope .....

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an incidence of taxation, which results in inequality, the law may be struck down as creating an inequality amongst holders of the same kind of property. It must, therefore, be held that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause ill Art. 14, though the Courts are not concerned with the policy underlying a taxing statute or whether a particular tax could not have been imposed in a different way or in a way that the Court might think mor .....

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ion, it permits classification. A statute may expressly make a discrimination between persons or things or may confer power on an authority who would be in a position to do so. Official arbitrariness is more subversive of the doctrine of equality than statutory discrimination. In respect of a statutory discrimination one knows where he stands, but the wand of official arbitrarianess can be waved in all directions indiscriminately. A statutory provision may offend Art. 14 of the Constitution both .....

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nciples have been applied by this Court to taxing statutes. This Court in Kunnathat Thathunni Moopil Nair v. The State of Kerala(1) held that the Travan- core-Cochin Land Tax Act, 1955, infringed Art. 14 of the Constitution, as it obliged every person who held land to pay the tax at the flat rate prescribed, whether or not he made any income out of the property, or whether or not the property was capable of yielding any income. It was pointed out that that was one of the cases where the lack of .....

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oviding for interest on delayed refund, the same should be granted as being compensatory in nature. In this context, counsel relied on the following decisions: (i) A Division Bench judgement dated 05.04.2016 in Special Civil Application No. 8127 of 2004 in case of Shree Mahalaxmi Metal Quarry vs. State of Gujarat and ors; (ii) In case of Sandvik Asia Ltd. vs. Commissioner of Income Tax and ors reported in 280 ITR 643; (iii) In case of Commissioner of Income Tax vs. Gujarat Fluoro Chemicals repor .....

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993 the same was brought into force w.e.f. 01.04.1993. The cut off date of 01.04.1993, therefore, was chosen with specific purpose. It would not be possible to grant interest on all pending cases. The legislature, therefore, provided that such interest should be granted only in case of assessments pertaining to the period from 01.04.1993 onwards. Such choice of the date therefore, is neither arbitrary nor discriminatory. 10. In this context, counsel relied on the following decisions: (i) In case .....

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ancial year 1967-68 is not estimated to exceed 75 million matches. In the matter of granting concession or exemption from tax, the Government has a wide latitude of discretion. It need not give exemption or concession to everyone in order that it may grant the same to some. As we said, the object of granting the concessional rate of duty was to, protect the smaller units in the industry from the competition by the larger ones and that object would have been frustrated, if, by adopting the device .....

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always be dubbed as arbitrary even if no, particular reason is forthcoming for the choice unless it is shown to be capricious or whimsical in the circumstances. When it is seen that a line or a point there must be and there is no mathematical or logical way of fixing it precisely, the decision of the legislature or its delegate must be accepted unless we can say that it is very wide of the reasonable mark. See Louisville Gas Co. v. Alabama Power Co. per Justice Holmes. (ii) In case of D.G.Gose .....

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, and when that Act was finally struck down as unconstitutional by this Court's decision dated August 13, 1968, (Reported in AIR 1969 SC 378), the intention to introduce a fresh Bill for the levy was made clear in the budget speech of 1970-71. It will be recalled that the Bill was published in June 1973 and it was stated there that the Act would be brought into force from April 1, 1970. The Bill was introduced in the Assembly on July 5, 1973. The Select Committee however recommended that it .....

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68 in which, the assessee in the context of making a contributory family pension scheme noncontributory with effect of a particular date which was challenged as violative of Article 14 of the Constitution, the Supreme Court held that merely because of the fact that such cut off date did not entitle the persons who have retired prior to such date to refund of the contribution already made, would not render the scheme violative of Article 14 of the Constitution. It was observed as under: 8. Whene .....

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e 14 of the Constitution, need not be held to be invalid. It shall not amount to "picking out a date from the fiat", as was said by this Court in the case of D.R. Nim v. Union of India2 in connection with fixation of seniority. Whenever a revision takes place, a cut-off date becomes imperative because the benefit has to be allowed within the financial resources available with the Government. 11. Learned advocate general further submitted that in absence of any statutory provision grant .....

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n case of India Carbon Ltd and ors vs. State of Assam reported in (1997) 6 SCC 479 in which, it was held that interest can be levied and charged on delayed payment of tax only on the statute that levies and charges the tax makes a substantive provision in this behalf. (iii) In case of Satellite Engineering Ltd. vs. Asst. Collector of Central Excise reported in 1992 (58) ELT 503 in which, it was held that in a writ petition seeking interest, the Court acting as the executing Court would not grant .....

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rcising powers under 'the Act' are bound by 'the Act'. They are creatures of the statute. They cannot go beyond the provisions of the statute. Learned Counsel for the petitioner has fairly conceded that the Act and the Rules framed thereunder did not make any provision whatsoever for payment of interest in respect of alleged or proved unlawful recovery of amount of excise duty. The Act and the Rules only provide in certain circumstances for refund of the amount of duty wrongly co .....

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any amount becomes due to the dealer by virtue of an order of assessment under section 41, for the specified year, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest at the rate of twenty four per cent per annum, on the said amount from the date immediately following the date of closure of the accounting year to which the said amount relates to the date of order of assessment: Provided that where dealer has paid any amoun .....

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calendar year commencing from the 1st January,1993; (iii) Samvat year 2049 commencing from the Kartak sud ekam,or (iv) Co-operative year commencing from 1st October,1993,or (v) Any such year thereafter 13. One can therefore, see that under the said provision a dealer entitled to refund by virtue of an order of assessment would receive in addition to such amount, simple interest at the specified rate to be calculated from the date immediately following the date of closure of the accounting year .....

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vailable wherever the refund arises out of an assessment for the financial year commencing from 01.04.1993 or onwards. The question is, was this specification of a cut off date of 01.04.1993 and onwards in any manner violative of Article 14 of the Constitution? Since the days of the Constitution Bench judgement in case of Budhan Chaudhary (supra), it is continuously followed that Article 14 prohibits class legislation but not reasonable classification. For classification, however, to be reasonab .....

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reference in this respect can be made to the decision of Supreme Court in case of The State of Jammu & Kashmir vs. Triloki Nath Khosa and ors reported in AIR 1974 SC 1. 15. When the legislature frames a new provision which either creates or extinguishes existing rights, there is invariable requirement of making such a provision applicable from a certain date. As long as the choice of the date is not arbitrary, the same would not be open to the vice of the unconstitutionality merely on the gr .....

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n of the said provision, an explanation was added by the legislature below Section 54(1) (aa) of the GST Act. The explanation was given retrospective effect. By virtue of this explanation therefore, it was made clear that the interest on delayed refund would be available only in case where the same relates to a specified year which would mean a financial year commencing from 01.04.1993 and onwards. We do not see that this provision, in any manner, offends Article 14 or the equality principle flo .....

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machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery .....

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in the absence of contract or usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount. (See Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji and Union of India v. A.L.Rallia Ram) Our attention was, however, drawn by Mr Sen to two cases. Even in those cases, CIT v. M. Chandra Sekhar and Central Provinces Manganese Ore Co. Ltd. V. CIT, all that the Court pointed out was that provision for charging interest was, it seems, introduced .....

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rest on delayed payment of tax must be construed as a substantive law and not adjectival law. So construed and applying the normal rule of interpretation of statutes, we find, as pointed out by us earlier and by Bhagwati, J. in the Associated Cement Co. case, that if the Revenue s contention is accepted it leads to conflicts and creates certain anomalies which could never have been intended by the Legislature. 17. In case of Orient Enterprises and anr (supra) as noted, it was observed that till .....

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s cited by the counsel for the petitioner. In case of Shree Mahalaxmi Metal Quarry (supra), the sole basis for grant of refund was the decision of Supreme Court in case of Sandvik Asia Ltd. (supra). The judgement in case of Sandvik Asia Ltd. (supra) came up for consideration before the larger Bench in case of Gujarat Fluoro Chemicals (supra). To both these judgements, we would refer to presently. 19. In case of Sandvik Asia Ltd. (supra), the Supreme Court granted interest on interest. A Division .....

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ed to compensation by way of interest for delay in payment of amounts lawfully due which are withheld wrongly and contrary to law. 20. The decision in case of Gujarat Fluoro Chemicals (supra) was carried in appeal by the Revenue and was considered by the larger Bench since the correctness of the decision of Supreme Court in Sandvik Asia Ltd. was questioned. The three Judge Bench of the Supreme Court in case of Gujarat Fluoro Chemicals observed that in Sandvik Asia Ltd., the Court had noticed tha .....

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s Court had directed the Revenue to pay interest on the statutory interest in case of delay in the payment. In other words, the interpretation placed is that the Revenue is obliged to pay an interest on interest in the event of its failure to refund the interest payable within the statutory period. 7. As we have already noticed, in Sandvik case (supra) this Court was considering the issue whether an assessee who is made to wait for refund of interest for decades be compensated for the great prej .....

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tion 244A to the Act which provides for interest on refunds under various contingencies. We clarify that it is only that interest provided for under the statute which may be claimed by an assessee from the Revenue and no other interest on such statutory interest. 21. Thus, the Supreme Court in case of Gujarat Fluoro Chemicals (supra) noticed that the decision in case of Sandvik Asia Ltd. was rendered in special facts of the case. When the Court noticed that the Revenue had delayed release of ref .....

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y that interest provided under the statute which may be claimed by an assessee from the refund and no other interest on such statutory interest. This decision thus reiterated that interest can be claimed only as per the statute and not beyond. It is true that while the matter was remanded to the High Court for fresh disposal the earlier directions for interest were retained. Nevertheless, we do not see any ratio laid down therein which would run contrary to the constitution Bench judgement in ca .....

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the Tribunal was challenged before the High Court. The main contention of the department was that section 54(1)(aa) grants interest on refund arising out of original order of assessment under section 41 of the GST Act. In the present case, since the right to receive refund arose by virtue of an appellate order, interest could not be claimed. The Division Bench upheld the view of the Tribunal that right to receive interest would accrue even in case of refund arising out of an appellate order. The .....

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jarat Fluoro Chemicals and held that such interest would be payable even otherwise. These observations of the Division Bench should be seen as passing remarks since such an issue directly arise before the Court in the said appeals. As noted, what was the center of the controversy before the Court was whether interest under section 54 (1) (aa) of the GST Act would be available if refund arose out of an appellate order and not the original order of assessment. The Court answered the question in th .....

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on tax paid on purchase of raw materials for manufacture of goods which are sold outside the State, the petitioner relied on the decision of the Tribunal in case of Wood Polymers Ltd. The Assessing Officer, instead of following such judgement, rejected the assessee s claim on the ground that the issue was sub judice. He allowed the petitioner to appeal against such order. Firstly, the Assessing Officer s approach was wholly erroneous and rather objectionable. It is undoubtedly true that if a cer .....

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es, Tribunals and the Courts. Entire taxing mechanism rests on such judicial discipline. The assessing authority therefore was duty bound to follow the judgement of the Tribunal. The fact, that the Revenue had carried the judgement of the Tribunal in appeal before the High Court and such appeal was pending, did not permit the Assessing Officer to ignore judgement of the Tribunal and compel the assessee to go in appeal. Once such a decision is rendered by the Assessing Authority, it is always ope .....

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for demand, that it came to know that the appeals were dismissed. The appellate authority while dismissing the appeals ex parte proceeded to decide the same on merits, nevertheless did not trouble himself to find out as to what had happened to the department s appeal in the High Court in case of Wood Polymer (supra). The High Court had decided such appeals by judgement dated 05.03.1982. The first appellate authority therefore when dismissed the petitioner s appeal on 26.02.2004, the law sofar as .....

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ut taking such basic care, the first appellate authority without issuance of notice of hearing to the petitioner, dismissed the appeals ex parte. Even after disposing of the appeals, no communication was sent to the petitioner. 25. It was therefore in the year 2009 that the petitioner upon coming to know about such facts filed appeals before the Tribunal. The Tribunal in view of the fact that the first appellate authority had proceeded ex parte merely remanded the proceedings before the first ap .....

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