State Of Karnataka vs. M/S Skanda Distributors Rep. By Its Manager
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Cause title — parties, addresses and appearances
O R D E R
This Sales Tax Revision Petition is filed under Section 65(1) of the Karnataka Value Added Tax Act, 2003 (‘Act’ for short), raising the following question of law;
“Whether in the facts and circumstances of the case, the Karnataka Appellate Tribunal is right in setting aside the levy of interest and penalty under Sections 36(1) and 72(2) of the Karnataka Value Added Tax Act, 2003, when the respondent himself has accepted that he has understated his liability to tax on the sale of Nutralite during the year 2007-08?”
The respondent is a dealer registered under the provisions of the Act and is a distributor of various products, including Table Margarine manufactured by M/s Zydus Wellness under the brand name “Nutralite”. The respondent purchases Nutralite from M/s Pioneer Marketing and sells the same to its customers. During the tax periods 2007-2008, both M/s Pioneer Marketing and the respondent had paid tax under the Act at the rate of 4% on the sale of Nutralite, based on the understanding that the said product is classifiable under Entry 31 of the III Schedule to the Act. Subsequently, M/s Pioneer Marketing was reassessed to tax under the Act, wherein it was held that Nutralite is taxable as an unscheduled commodity at the rate of 12.5%. Accordingly, M/s Pioneer Marketing was made liable to pay incremental tax at the rate of 8.5% on the sales of Nutralite effected to the respondent.
In the reassessment proceedings initiated against the assessee herein, the respondent assessee did not dispute the levy of additional tax on the sale of Nutralite at the rate of 12.5%, however, claimed input tax credit on the additional tax paid by M/s Pioneer Marketing.
The assessing authority passed reassessment order levying tax at the rate of 12.5% on the sale of Nutralite rejecting the additional claim of input tax credit made by the respondent. The assessing authority also levied interest and penalty in terms of Sections 36(1) and 72(2) of the Act. Being aggrieved, the assessee has preferred appeals before the first appellate authority, which came to be dismissed confirming the order passed by the prescribed authority. On further appeal before the Karnataka Appellate Tribunal filed by the respondent, the same came to be partly allowed affirming the denial of additional input tax credit claimed by the respondent setting aside the levy of interest and penalty on the ground that the assessee has not understated its tax liability or overstated its input tax credit. Being aggrieved by the same, the State has preferred this revision petition.
Learned AGA appearing for the revision petitioner – State submitted that the Tribunal failed to appreciate the vital aspect of levy of interest and penalty under Sections 36(1) and 72(2) of the Act respectively. The respondent having accepted short payment of tax on the sale of Nutralite has challenged the denial of input tax credit to the entire extent of 12.5% as claimed and the levy of interest and penalty. In such scenario, the Tribunal ought not to have set aside the order of imposing interest and penalty which indeed is in conformity with the provisions of the Act. Learned AGA further submitted that the Tribunal has passed the order dated 26.4.2018 on the Sales Tax Rectification Application No.2/2016, whereby the said application filed by the assessee has been allowed modifying the order dated 19.8.2016 passed in STA Nos.902- 913/2012 holding that Margarine is taxable at 5.5% as per the decision of this Court in W.P.No.15894/2016 (T- RES) (22.3.2016) (M/s Pioneer Marketing v. State of Karnataka and another) .
We have heard the learned counsel appearing for the petitioner and perused the material on record.
At the outset it is evident that the petition is mi irected in analyzing the order of the Tribunal, more particularly, the order passed by the Tribunal in Sales Tax Rectification Application No.2/2016. The revision petition requires to be rejected in limine for the following reasons;
Firstly, the reassessment order passed by the prescribed authority, wherein tax at the rate of 12.5% with interest under Sections 36(1) and 72(2) of the Act relating to the sale of Nutralite was the subject matter of the appeal before the first appellate authority. The said appeal for the tax period in question came to be dismissed upholding the levy of tax at 12.5% on the sale of Nutralite Table Margarine upholding the levy of interest and penalty. The Tribunal though observed that the issue of classification of commodity and the rate of tax with respect to Nutralite Margarine was considered and decided by this Court, in the case of M/s Pioneer Marketing, supra, wherein the rate of tax was held to be 4% under Entry 31 of the III Schedule of the Act, but proceeded to deny the claim of input tax credit of 12.5% as claimed by the assessee. In other words, the reassessment order passed allowing the input tax credit of 4% on the purchase of Table Margarine made by it from M/s Pioneer Marketing confirmed by the first appellate authority, has been upheld. Having regard to these aspects, the Tribunal observed that there was no understatement of output tax liability and overstatement of entitlement to input tax credit by the assessee in the return filed and accordingly, set aside the levy of penalty and interest. Further, liberty was reserved to the revenue to levy interest and penalty, if any violation of the provisions of Sections 36 and 72(2) of the Act was found after recomputing the total and taxable turnover. In view of this liberty reserved to the revenue, the State ought not to have ventured to file this revision petition.
Secondly, it is significant to note that the original order dated 19.8.2016 passed in STA Nos.902- 913/2012 has been modified by the Tribunal in Sales Tax Rectification Application No.2/2016 vide order dated 26.4.2018 modifying the rate of tax on Margarine at 5.5% instead of 12.5% placing reliance on the decision of this Court in M/s Pioneer Marketing, supra. For the tax periods in question i.e., from April 2007 to March 2008, the reassessment order was passed considering the commodity Nutralite Margarine as unscheduled goods falling under Section 4(1)(b) of the Act. It is not in dispute that this Hon’ble Court in M/s Pioneer Marketing, supra, has categorically held that said Nutralite Margarine falls under III Schedule attracting the rate of tax at 4%. In terms of Section 4(1)(a)(ii) of the Act, for the relevant period the applicable rate of tax ought to have been 4%. Be that as it may, for the reasons best known to the revenue, the order passed in Sales Tax Rectification Application No.2/2016 is challenged in the present proceedings but the question of law raised is with respect to levy of interest and penalty.
We are not inclined to express any opinion on the rate of tax modified by the Tribunal at 5.5% whether is justifiable when the III Schedule during the relevant period attracts the rate of 4%, as the said issue is not before us. The Tribunal having modified the rate of tax from 12.5% to 5.5% in terms of the order passed in Rectification Application following the decision of this Court in M/s Pioneer Marketing, supra, it cannot be gainsaid that there is no understatement of output tax liability or overstatement of entitlement to input tax credit by the appellant in the return filed. Further, no ground is made out by the Revenue for imposing such interest and penalty in the given facts and circumstances of the case. As such, we find no exception with the view taken by the Tribunal. The petition is wholly misconstrued and is bereft of merits. Accordingly, we answer the question of law against the Revenue and in favour of the assessee.
In the result, Sales Tax Revision Petition stands dismissed. JUDGE JUDGE
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Reproduced from the public record of the Karnataka High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.