The State Of Karnataka vs M/S. Applicomp (India) Ltd
2021 Latest Caselaw 5305 Kant

     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 2ND DAY OF DECEMBER, 2021

                        PRESENT

          THE HON'BLE MRS.JUSTICE S.SUJATHA

                           AND

THE HON'BLE MR. JUSTICE HANCHATE SANJEEVKUMAR

     W.A.No.527/2014 c/w W.A.No.581/2014 (T - RES)


IN W.A.No.527/2014:

BETWEEN :

1.     THE STATE OF KARNATAKA
       REP BY ITS ADDITIONAL CHIEF SECRETARY
       AND PRINCIPAL SECRETARY TO GOVERNMENT
       FINANCE DEPARTMENT,
       VIDHANA SOUDHA, Dr. AMBEDKAR VEEDHI
       BANGALORE-560001

2.     THE COMMISSIONLER OF
       COMMERCIAL TAXES KARNATAKA
       VANIJYA THERIGE KARYALAYA
       GANDHINAGAR, BANGALORE-560009

3.     THE ASSISTANT COMMISSIONER
       OF COMMERCIAL TAXES IN KARNATAKA
       LOCAL VAT OFFICER 025 (ADDL.)
       VANIJYA THERIGE KARYALAYA-II
       NEAR NATIONAL GAMES COMPLEX
       KORAMANGALA
       BANGALORE-560047                 ...APPELLANTS

             (BY SRI JEEVAN J. NEERALGI, AGA.)
                             -2-




AND :

M/s APPLICOMP (INDIA) LTD.,
HOSUR ROAD, ATTIBELE
BANGALORE-560107
REP BY ITS EXECUTIVE ACCOUNTS
& AUTHORIZED SIGNATORY
SRI J.ARON MANOHARAN
S/O SRI A.JOB PUSHPARAJ
AGED ABOUT 42 YEARS                         ...RESPONDENT

                (BY SRI G.RABINATHAN, ADV.)

     THIS W.A. IS FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE
ORDER PASSED IN THE WRIT PETITION Nos.18624-18645/2012
DATED 25.07.2013.


IN W.A.No.581/2014:

BETWEEN :

1.      THE ASSISTANT COMMISSIONER OF
        COMMERCIAL TAXES, (AUDIT),
        KUNDAPURA, UDUPI DISTRICT-576141.

2.      THE COMMERCIAL TAX OFFICER (AUDIT),
        KUNDAPURA, UDUPI DISTRICT-576 141.

3.      THE JOINT COMMISSIONER OF
        COMMERCIAL TAXES (APPEALS)
        MYSORE DIVISION, MYSORE-570024

4.      THE COMMISIONER OF COMMERCIAL TAXES,
        GANDHINAGAR, BANGALORE-560 009.

5.      THE PRINCIPAL SECRETARY
        TO GOVERNMENT, FINANCE DEPARTMENT,
        VIDHANA SOUDHA,
        BANGALORE-560 001.             ...APPELLANTS

              (BY SRI JEEVAN J. NEERALGI, AGA.)
                            -3-




AND :

M/s MAHAGANAPATHI GRAMODYOGA SANGHA
P.O. PERNAKILA
UDUPI TALUK & DISTRICT-576141
BY ITS PRESIDENT
SRI KALIDAS BHANDARY, 43 YEARS     ...RESPONDENT

             (BY SRI T.N.KESHAVA MURTHY, ADV.)

     THIS W.A. IS FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE
ORDER PASSED IN THE WRIT PETITION Nos.2607-2615/2013
DATED 25.07.2013.

      THESE APPEALS COMING ON FOR HEARING, THIS DAY,
S. SUJATHA, J., DELIVERED THE FOLLOWING:

                    JUDGMENT

Since common and akin issues are involved in

these appeals, they are taken up together and disposed

of by this common judgment.

2. These intra-Court appeals are filed by the

State under Section 4 of the Karnataka High Court Act,

1961 assailing the order passed by the learned Single

Judge in W.P.Nos.18624-18645/2012 and

W.P.Nos.2607-2615/2013, dated 25.07.2013.

3. The respondent is a company and a dealer

registered under the provisions of the Karnataka Sales

Tax Act, 1957 ('KST Act' for short) and Karnataka Value

Added Tax Act, 2003 ('KVAT Act' for short) as well as the

Central Sales Tax Act, 1956 ('CST Act' for short). The

subject matters are pertaining to New Industrial Policy,

1996 and Package of Incentives and Concession (1996 -

2001) issued as per the Government Order dated

15.03.1996 and the Notification dated 15.11.1996

issued by the Government of Karnataka under Section

19-C of the KST Act. This industrial policy offers

incentives to mega projects which have investment in

fixed assets in excess of Rs.100 crores. The respondents

- assessees were also availed the benefits of the said

Industrial Policy under the KST Act. Indisputably, the

Department of Industries and Commerce, Government

of Karnataka had issued eligibility certificates to the

respondents - units certifying that the respondents were

eligible to avail tax exemption on local and inter-State

sales of manufactured goods for a period of ten years

from 01.04.2001 to 31.03.2011 (M/s. Applicomp India

Limited) and for a period of six years with effect from

14.06.2000 to 13.06.2006 (M/s Mahaganapathi

Gramodyoga Sangha).

4. Pursuant to KVAT Act coming into force from

01.04.2005, the jurisdiction was conferred on the State

to issue notification for continuation of incentives to the

extent of unavailed quantum and eligibility periods by

way of refund of tax collected and paid, under sub-

Section (2) of Section 5 of the KVAT Act.

5. Demand notices were issued by the

Prescribed Authority on the respondents - assessees

pursuant to passing of the respective orders, demanding

tax, interest and penalty alleging non-compliance of the

conditions stipulated in the Notification dated

15.11.1996. The assessees - petitioners being aggrieved

by the aforesaid orders/demands preferred writ

petitions in W.P.Nos.18624-18645/2012 and

W.P.Nos.2607-2615/2013. Learned Single Judge has

allowed the said writ petitions setting aside the

order/demand raised by the department. Hence, these

writ appeals by the State.

6. Learned AGA appearing for the appellants -

State submitted that the learned Single Judge has failed

to appreciate clauses (3) and (4) of the exemption

notification dated 18.04.2005 in a right perspective. It

was mandatory for the industrial unit to charge and

collect the tax applicable under the KVAT Act on the

sale of goods manufactured by it, and pay the net tax

payable along with the return as prescribed under the

said Act to the jurisdictional authority. This mandatory

requirement was not complied with, by the respondents

- assessees. Clause (4) of the exemption notification

would be applicable only on fulfilling condition No.3. As

the respondents - assessees have violated the conditions

prescribed in the said notification, assessments were

concluded as per the provisions of the KVAT Act on

regular basis since the exemption notification was not

applicable to them. Learned AGA argued that the

exemption notification has to be construed strictly. Non-

compliance of the conditions stipulated in the

exemption notification would disentitle the respondents

- assessees to claim the benefit of exemption

notification.

7. Learned counsel Sri. G. Rabinathan

appearing for the assessee in W.A.No.527/2014 argued

that Section 5(2) of KVAT Act is stand alone provision. It

is only the methodology adopted to facilitate the

assessee to avail the benefit of the exemption

notification which indeed was granted under the KST

regime. For the unavailed period by virtue of the

notification dated 18.04.2005, exemption was extended.

The conditions imposed in clause (3) is only to ascertain

the net tax liable to be paid by the assessee. Non-

compliance with the condition of deposit of tax collected

by the assessee - petitioner does not whittle down the

benefit of exemption granted to the assessee for a

particular period supported by the certificate issued by

the Department of Industries and Commerce which was

in force during the relevant tax periods. Learned

counsel submitted that belated payment of tax would

not disqualify the respondent - assessee from availing

the benefit of exemption.

8. Learned counsel Sri. T.N. Keshava Murthy

appearing for the assessee in W.A.No.581/2014

supporting the arguments of the assessee in the

connected matter submitted that non-payment of tax

along with the returns filed would not affect the essence

or substance of the notification granting exemption and

the conditions stipulated in clause (3) is only directive.

The eligibility of the assessee for exemption not being

cancelled, no denial of exemption could be made under

the VAT regime when the same was granted under an

industrial policy for a particular period under the KST

regime.

9. We have carefully considered the rival

submissions of the learned counsel appearing for the

parties and perused the material on record.

10. In order to achieve the objectives having

regard to the liberalization of economic industry of trade

policies and in order to attract investments to important

sectors throughout the State maintaining ecology and

environment, development of entrepreneurship among

the locals, investment by the industry in research and

development and to increase export substantially with

such other related industrial developments, the State

has resolved to adopt the industrial policy of incentive

package as detailed in Annexures-1 and 2 to the

Government order dated 15.03.1996. Clause-5 of the

- 10 -

said Government Order enumerates about the sales tax

concession for new Units. Pursuant to the said GO,

notification No.FD 32 CSL 96[I], dated 15th November,

1996 was issued by the Government of Karnataka

exercising the powers under Section 19-C of the KST

Act. Finance Department of the Government of

Karnataka by Notification No.FD 296 CSL 99[1] dated

20.07.2000 invoking Section 19-C of the KST Act,

extended exemption from tax on sales of goods

manufactured and sold by the respondent -

M/s. Applicomp (India) Ltd., for a period of 10 years

from the date of commencement of commercial

production. Further, vide Notification No.FD 196 CSL

99[2] dated 20.07.2000, invoking Section 8[5] of the

CST Act, exemption was granted from payment of tax on

inter-state sales of own manufactured goods for a period

of 10 years from the date of commencement of

commercial production. The Department of Industries

and Commerce, Government of Karnataka, issued

- 11 -

eligibility certificate dated 12.10.2001 certifying that the

petitioner was eligible to avail tax exemption on local

and inter-state sales of own manufactured goods for a

total amount of Rs.351.26 Crores over a period of 10

years commencing from 01.04.2001 to 31.03.2011 and

also allowed exemption of tax on local and inter-state

sales of own manufactured goods with effect from

01.04.2001.

11. Similarly, certificate dated 14.12.2000 was

issued by the department of industries and commerce,

Government of Karnataka certifying that M/s.

Mahaganapathi Gramodyoga Sangha [respondent in

W.A.No.581/2014] is eligible to avail sales tax

exemption [both KST and CST] for a period of 6 years

with effect from 14.06.2000 i.e., the date of

commencement of commercial production and limited to

150 percentage of investments made on fixed assets.

- 12 -

12. State Government has issued Government

Order No.FD CSL 99 [3] dated 07.01.2000 discontinuing

tax based exemptions and concessions to new

industries and the investments under various policies

and incentives on concession. However, the said

discontinuation will not affect the following cases:

[1] The incentives that have been already offered

and committed by the Government until the

period of eligibility of such incentives are

completed; or otherwise decided.

[2] xxxxxx

13. Indisputedly, the respondents-assessees

would come under the exception carved out in the

Government Order dated 07.01.2000. The Notification

dated 18.04.2005 Annexure-A reads thus:

"(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);

- 13 -

(2) The tax exemption extended in this notification shall be limited to the un-availed portion of period and extent of tax exemption extended in the relevant notification and any Government Order and also subject to the overall tax concession originally extended;

(3) The industrial unit shall charge and collect the tax applicable under the said Act, on the sale of goods manufactured by it, and pay the net tax payable along with the return prescribed under the said Act to the jurisdictional authority;

(4) The industrial unit 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) The industrial unit claiming tax exemption under this notification shall not be deemed to have been assessed based on the

- 14 -

return filed by him and any refund made shall be subject to assessment requiring production of accounts in support of the return filed;

(6) The tax exemption extended in this notification shall not be available to an industrial on its sale of goods to another industrial unit which is claiming exemption of tax on its

CSL 2005(3), dated 18-04-2005.

(7) On any claim of deduction of input tax by a registered dealer on his purchase from the industrial unit claiming tax exemption under this notification, on account of any sale in the course of inter-State trade or export outside the country of the goods purchased, the amount refunded to such industrial unit shall be repayable to the extent of input tax claimed by the purchaser.

(8) The unit claiming tax exemption under this notification shall be eligible for input tax rebate as specified under the said Act, while calculating the net tax payable by the industrial unit.

- 15 -

(9) The industrial unit claiming tax exemption under this notification shall file an application before the jurisdictional Joint Commissioner of Commercial Taxes within 30th April, 2005, giving details of the extent and period of tax exemption extended, availed and the balance, the relevant notification under which it was availing the tax exemption and the date from which it intends to claim tax exemption under this notification.

(10) The jurisdictional Joint Commissioner of Commercial Taxes shall issue a Certificate of Entitlement regarding the tax exemption available to the industrial unit under this notification, within ten days from the date of filing of an application by the industrial unit after verification of the claim made."

14. Under Clause-4 of the Notification dated

18.04.2005, the industrial unit 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

- 16 -

return, if it is filed after the time specified, in the

manner prescribed under the said Act by the

jurisdictional authority. Further, interest shall be paid

for any delay in the refund, as specified under the said

Act. No outer limit is fixed for filing the return after the

time specified in Section 35 of the Act. As such, no

contravention of the conditions specified in the said

Government Notification could be ascribed to the

respondents. On reading of the said Notification dated

18.04.2005 with the industrial package policy of 1991-

96, it could be inferred that the industrial unit claiming

tax exemption shall not be deemed to have been

assessed based on the return filed. This is an exception

to the regular provision of Section 38 of the KVAT Act

and hence the net tax cannot be characterized as the

tax under the Act so as to attract the provisions of the

Act viz., Sections 36, 42 and 72. Even on this point, the

findings recorded by the learned single Judge in

- 17 -

paragraph 23 of the impugned order assumes

significance.

15. It is recorded that to a question of the writ

Court, learned Government advocate had submitted that

even payment of the tax collected by the respondent is

made to the State in terms of condition No.4, it is more of

a formality of accounting that amount as against the

total amount of exemption from payment of tax during

the relevant period and nothing more. Thus, belated

filing of monthly returns with the net tax payable or filing

of monthly returns without the payment of the said tax is

inconsequential in the light of Clause-5 of the

Notification at Annexure-A. Once the net tax payable in

the returns cannot be construed as the tax due by virtue

of the Notification [Annexure-A] imposing of interest and

penalty is wholly unsustainable. Learned single Judge

having considered the decision of the Constitution bench

of the Hon'ble Apex Court in Commissioner of Central

Excise, New Delhi V/s. Harichand Sri Gopal [(2011) 1

- 18 -

SCC 236], has held that some latitude can be shown if

there is failure to comply with some requirements which

are directory in nature which indeed would not affect the

essence or the substance of the Notification granting

exemption. Given the circumstances, we find no

jurisdictional error in with the order impugned.

Writ Appeals are bereft of merit and accordingly

stand dismissed.

Sd/-

JUDGE

Sd/-

JUDGE

PMR/NC.