M/S Mangalore Chemicals And Fertilisers LTD vs. State Of Karnataka

Held

The Court allowed the writ petition in part and set aside the impugned order dated 25.09.2020, remanding the matter to the Deputy Commissioner of Commercial Taxes for reconsideration. The Court found that the question of whether tax could be levied on interstate stock transfers and sales made locally in other states had not been examined, and this was crucial as it related to the very jurisdiction to levy taxes. If the petitioner succeeded on this point, the impugned order would need modification. Therefore, the matter was remanded on this ground. Furthermore, the Court held that the contention regarding the levy of tax on subsidies would have to be considered in light of the Supreme Court's dictum in the 'Neyveli Lignite Corporation Limited' case. The distinction attempted by the respondent based on the difference in KVAT Act provisions compared to other state acts would not be permissible if the Supreme Court had decided the question in favour of an entity receiving subsidy in similar circumstances. The petitioner was directed to appear before the Deputy Commissioner on 02.12.2020, who was to provide a reasonable opportunity to show cause against the proposed levy and consider the petitioner's arguments against the proposition notice in light of the Supreme Court's decision.

Facts

The petitioner, M/s. Mangalore Chemicals and Fertilisers Ltd., challenged an order dated 25.09.2020 and a demand notice issued by the Deputy Commissioner of Commercial Taxes (Audit)-4. The petitioner argued it did not receive sufficient opportunity to show cause against the re-assessment. It received a proposition notice on 29.01.2020, followed by a revised proposition notice on 16.03.2020. Due to COVID-19 restrictions, the petitioner requested an extension and filed a previous writ petition (W.P. No.10322/2020) challenging the revised notice, which was disposed of with liberty to challenge the impugned order. The petitioner contended the re-assessment wrongly included tax on interstate stock transfers and local sales in other states. Additionally, the petitioner argued that tax could not be levied on subsidies received from the Central Government under the Urea Based Subsidy Scheme and the Nutrients Based Subsidy Scheme, citing the Supreme Court's decision in 'Neyveli Lignite Corporation Limited v. Commercial Tax Officer'. The respondents argued the petitioner had reasonable opportunity and its conduct indicated an effort to defeat re-assessment.

Key Issues

1. Whether the petitioner was afforded a reasonable opportunity to show cause against the re-assessment proceedings, particularly concerning the revised proposition notice dated 16.03.2020, and whether the Deputy Commissioner erred by proceeding to pass the impugned order despite the pendency of a previous writ petition filed by the petitioner. - Petitioner's argument: The petitioner was not given sufficient opportunity, especially in light of COVID-19 restrictions and the pendency of a prior writ petition. The revised proposition notice wrongly proposed to levy tax on interstate stock transfers and sales made locally in other states, which are outside the jurisdiction of Karnataka. - Revenue's argument: The petitioner's conduct demonstrated a lack of genuine engagement with the opportunities provided, and the petitioner sought extensions and filed writ petitions to delay or defeat the re-assessment process, which was nearing its timeline expiry. 2. Whether the subsidy received by the petitioner from the Central Government under the Urea Based Subsidy Scheme and the Nutrients Based Subsidy Scheme is exigible to tax under the Karnataka Value Added Tax Act, 2003. - Petitioner's argument: Following the Supreme Court's decision in 'Neyveli Lignite Corporation Limited', tax cannot be levied on fertilizer subsidies granted independent of the price. The distinction made by the respondent regarding the KVAT Act being different from the Tamil Nadu and Kerala Sales Tax Acts is not permissible when the Supreme Court has decided on similar circumstances. - Revenue's argument: Not recorded in the judgment.