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TMI Blog2018 (3) TMI 1369X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained de-oiled rice bran as a by-product. While the rice bran oil was a taxable commodity under the Karnataka Value Added Tax Act, 2003 ['KVAT Act', for short], the de-oiled rice bran was an exempted product. The petitioner applied for partial rebate under Section 17 of the KVAT Act and accordingly restricted its claim of input tax credit to the extent of the inputs utilized towards the de-oiled rice bran. This court in the case of 'M/S. M.K. AGRO TECH PRIVATE LIMITED v. STATE OF KARNATAKA' in STRP Nos.774-794/2013 held that principles of partial rebate under Section 17 of the KVAT Act cannot be applied in cases where there is an exempted by-product as opposed to an exempted final or end product. Based on the said Judgment, the petitioner approached this Court in Writ Petition Nos.110509-525/2015 seeking for a direction to the concerned Authority to refund the input tax credit in respect of the tax period, March 2014 to July 2015. This Court following the decision of the Division Bench in M.K. AGRO TECH's case supra,allowed the writ petitions and a direction was issued to Respondent No.1 to process the application filed by the petitioner for refund of input tax paid in excess, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution of India, to amend the writ petition. The additional relief sought by the petitioner is to quash the Circular No.09 of the CCT dated 9.10.2017 as per Annexure-J, by issuing a writ of certiorari or any other writ or order in the nature of writ. In a separate order passed by this Court, these two applications are allowed. 5. Learned Senior Counsel Sri K.P. Kumar, representing M/s. Kamath & Kamath, learned Counsel for the petitioner would submit as under: [i] KVAT Act was repealed with effect from 1.7.2017 and on the very same day, Karnataka Goods & Services Tax Act, 2017 ['KGST Act', for short], has come into effect. In terms of Sections 173 and 174 of the KGST Act, the repeal of the KVAT Act shall not revive anything not in force or existing at the time of such repeal, the action or proceedings initiated subsequent to the KGST Act coming into force are not saved under the KVAT Act. KGST Act coming into force on 1.7.2017, the Judgment of the Hon'ble Apex Court dated 22.09.2017 in M.K. AGRO TECH case supra cannot be made applicable to invoke the provisions of the KVAT Act. [ii] The notices issued by the respondent under Section 69[1] of the KVAT Act would not empo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2017, informing that the same relates to the internal matters of administration of the Department. Therefore, in case of necessity of the said circular, petitioner can contact the CCT, Bengaluru. It was mandatory on the part of the respondent to provide the circular of CCT, the basis on which the impugned orders were passed before passing of the orders. It is settled law that any information/ documents/circulars relied upon by the Authorities must be made known to the Assessees while demand is made based on such material. The impugned orders passed are in violation of the principles of natural justice. On this ground alone, the orders impugned requires to be set aside. [v] The Commissioner has no power to issue circular No.09/17-18 dated 9.10.2017 which is mainly based on the Judgment of the Hon'ble Apex Court in the case of M.K. AGRO TECH supra. Further, the CCT cannot direct the Authorities to levy penalty and interest as per the levies existed at that point of time for the relevant years of assessment/reassessment in view of the ratio of the Judgment of the Hon'ble Apex Court. The respondent-Authority demanding refund amount with post interest is without the authority of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficers, issued the Circular dated 9.10.2017, bringing to the notice of the departmental authorities, the Judgment of the Hon'ble Apex Court in the case of M.K. AGRO TECH supra. It is no doubt true that the penalty and interest are directed to be levied, but no such penalty is levied in the case on hand. It is only interest has been levied which is in conformity with Section 36[1] of the KVAT Act. The argument of the learned Senior Counsel, in as much as, not providing adequate opportunity to the petitioner would not be relevant since the respondent has acted upon the Judgment of the Hon'ble Apex Court in the case of M.K. AGRO TECH supra, which is binding on the authority as well as the Assesse. [iii] The Assessee placing reliance on the Judgment of M.K. AGRO TECH supra, sought for refund of input tax credit, strangely now canvassing arguments that the said Judgment is not applicable to the facts of the present case. [iv] Issuance of notice under Section 42 of the KVAT Act was only for the purpose of information. Further, though notice was issued under Section 69][1] of the KVAT Act, orders are passed under Section 10[5] read with Section 69[1] of the KVAT Act which was the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed day under the said repealed Acts and such proceedings shall be continued under the said repealed Acts as if this Act had not come into force and the said Acts had not been repealed. (2) Not withstanding anything contained in section 173, for the purpose of giving effect to sub-section (1), the State Government may, by notification, in the Official Gazette make such provision as appears to it necessary or expedient,- (a) for making omissions from, additions to and adaptations and modifications of the rules, notifications and orders issued under the repealed Acts; (b) for specifying the authority, officer or person who shall be competent to exercise such functions exercisable under any of the repealed Acts or any rules, notifications or orders issued thereunder as may be mentioned in the said notification. (3) Notwithstanding anything contained in section 173, nothing contained in any of the repealed Acts limiting the time within which any action may be taken or any order, assessment or re-assessment may be made shall apply to an assessment or re- assessment made on the assessee or any person,- (i) in consequence of, or to give effect to, any finding, direction or ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, passed the order which reads thus: "3. It is not in dispute and indeed it is submitted by the learned AGA that the matter is covered by the decision of Division Bench dated 17.07.2014 in STRP Nos.774-794 of 2013. However, it is submitted by him that Special Leave Petitions have been preferred by the State against the said judgment and the matters are pending before the Apex Court where no interim order has been granted. The petitioner has further placed reliance on the decision in W.P. Nos.1095-1100/2015 disposed of on 27.04.2015 wherein, following the order passed by the Division Bench, this Court has directed the respondents to process the application filed by petitioners for refund and to refund the amount to which they are found entitled by obtaining indemnity bond from the petitioners and subject to the result of pending Special Leave Petitions. The orders passed in the connected writ petitions are also placed on record for the perusal of this Court. 4. In the result, by following the decision of the Division Bench and the orders subsequently passed in the writ petition pursuant to the judgment rendered by the Division Bench, these writ petitions are allowed. A direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pex Court, but in the peculiar facts and circumstances of the case when the petitioner has approached this court seeking refund of the amount referring to the Judgment of the Division Bench in M.K. AGROTECH's case supra and obtained an order, it is obligatory on the part of the petitioner to obey the orders of this court. However, the conduct of the petitioner turning around and assailing the proceedings initiated by the respondent-authorities to demand/recover the refund amount cannot be appreciated. Insisting for the notification to be published in terms of Section 174(2) of the KGST Act, the assessee cannot deviate from the undertaking given by filing indemnity bonds before the authorities while getting the refund orders. 16. Section 69(1) of the KVAT Act contemplates for rectification of mistakes. Section 69(2) provides that any amendment which has the effect of enhancing an assessment or otherwise in accordance with law of the person concerned shall not be made unless the prescribed authority, appellate authority or revising authority, as the case may be, has given notice to the person concerned of its intention to do so and has allowed the person concerned the opportunity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in collecting taxes, interest and penalty, finalising the assessments or initiating any proceedings in furtherance of achieving the benefit of the judgment of Hon'ble Apex Court. 19. It is trite law that penalty is not automatic, while imposing penalty, it is mandatory to provide an opportunity of hearing to the dealer but in the batch of present cases, no such penalty is levied by the prescribed authority. 20. As regards levy of interest, it is apt to refer to the judgment of the Constitution Bench of the Hon'ble Apex Court in the case of J.K.SYNTHETICS LTD. -VS- COMMERCIAL TAXES OFFICER reported in (1994) 94 STC 422 whereby the Hon'ble Apex Court has observed thus: "Before we proceed further we must emphasise that penalty provisions in a statute have to be strictly construed and that is why we have pointed out earlier that the considerations which may weigh with the authority as well as the Court in construing penal provisions would be different from those which would weigh in construing a provision providing for payment of interest on unpaid amount of tax which ought to have been paid. Section 3, read with Section 5 of the Act, is the charging provision whereas the rest of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture to provide for charging interest, the Court must give that meaning to it as is conveyed by the language used and the purpose to be achieved. Therefore, any provision made in a statute for charging or levying interest on delayed payment of tax must be construed as a substantive law and not adjectival law." 21. In the light of the said judgment, it can be held that interest is levied in order to compensate any loss occasioned to the revenue due to delay. The dealer was liable to pay the tax in terms of Section 10 of the KVAT Act. In view of the said judgments of this court in M/s M.K. AGROTECH's case supra applying the principles enunciated therein, net tax was computed and refund was claimed before this court, on the submissions made by the revenue that the matter is subjudiced before the Hon'ble Apex Court, refund order was directed to be made subject to the result of the decision of the Hon'ble Apex Court. Had no refund was made, the tax amount would have been utilized by the revenue. In other words, there is a delay caused in making the payment of legitimate taxes to the department. However, levy of interest under Section 36 shall be subject to hearing in the peculiar circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matters are remanded to the prescribed authority to examine the levy of interest applicable to the tax demanded. Though an attempt was made by the learned senior counsel that an undertaking was given before this court only relating to 16 months and not to 22 months, the refund orders are passed for 22 months on furnishing of the indemnity bonds by the assessee in terms of the order of this court in W.P.Nos.110509-525/2015. Hence, the petitioner cannot turn back and dispute the demand of tax made by the prescribed authority. Hence, the following:
ORDER
i) Petitions are allowed in part.
ii) Demand of refunded tax amount is confirmed.
iii) Commissioner's circular dated 9.10.2017 is read down to the effect that levy of penalty/interest is not automatic, while demanding refunded tax, on the ratio of the judgment of the Hon'ble Apex Court in M/s M.K. AGRO TECH's, supra, opportunity of hearing is mandatory to levy penalty/ interest.
iv) Matters are remanded to the prescribed authority to provide an opportunity of hearing inasmuch as the levy of interest and prescribed authority shall proceed to pass appropriate orders in accordance with law in quantifying the interest amount. X X X X Extracts X X X X X X X X Extracts X X X X
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