Madras High Court
Bonfiglioli Transmissions ... vs Assistant Commissioner (Ct) on 25 February, 2021
W.A.No.1501 of 2015
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 25.02.2021
CORAM
THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM
and
THE HONOURABLE MS.JUSTICE R.N.MANJULA
Orders Reserved On Orders Pronounced On
03.02.2021 25.02.2021
W.A.No.1501 of 2015
and M.P.No.1 of 2015
Bonfiglioli Transmissions Private Limited,
Represented by its Head Commercial Mr.T.K.Ravi,
Plot No.AC7-Ac 11, Sidco Industrial Estate,
Chennai – 600 044. .. Appellant
-vs-
Assistant Commissioner (CT),
Tambaram-1 Assessment Circle,
Chennai – 600 045. .. Respondent
Appeal under Clause 15 of the Letters Patent Act to set aside the
order dated 15.07.2015 made in W.P.No.20179 of 2014.
For Appellant : Mr.Joseph Prabakar
For Respondent : M/s.G.Dhanamadhri
Government Advocate (Tax)
1/20
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W.A.No.1501 of 2015
JUDGMENT
T.S.SIVAGNANAM, J.
This appeal filed by the writ petitioner is directed against the order
dated 15.07.2015 in W.P.No.20179 of 2014.
2.The appellant filed the writ petition praying for issuance of writ of
Certiorari to quash the notice issued by the respondent dated 16.04.2014
demanding penal interest under Section 24(3) of the Tamil Nadu Value
Added Tax Act, 2006 [hereinafter referred to as “TNVAT Act”] on the
ground that there was belated payment of sales tax by the appellant.
3.The appellant is a registered dealer under the provisions of the
TNVAT Act and the Central Sales Tax Act”, 1956 [hereinafter referred to as
“CST Act”]. The appellant is engaged in the manufacture of industrial gear
motor, gear boxes with their Unit situated in SIDCO Industrial Estate,
Thirumudivakkam, Chennai – 600 044. The appellant applied to the State
Industries Promotion Corporation of Tamil Nadu Limited [SIPCOT] for
issuance of eligibility certificate under the Sales Tax Deferral Scheme by
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W.A.No.1501 of 2015
application dated 30.08.2000. By letter dated 20.05.2002, the SIPCOT
intimated the appellant that their application has been favourably considered
for issuance of eligibility certificate and requested the appellant to execute
the agreement and other document with the Commercial Taxes Department.
In terms of the eligibility certificate which was issued on 17.05.2002, the
deferral period was from 01.07.2000 to 30.06.2009. The appellant executed
an agreement dated 21.06.2002, with the respondent Department for deemed
payment of deferred sales tax. The deferral period mentioned in the
agreement was from 01.05.2002 to 30.04.2011. One of the condition in the
agreement which would be of relevance to decide the dispute on hand is
condition Nos.1 and 1a, which reads as follows:
“1.The Sales Tax due on the sale of the products
manufactured by them in their Facotry at Plot No.AC7 &
AC11, SIDCO Industrial Estate, Thirumudivakkam,
Sriperumbudur Taluk, Kancheepuram Dist. Shall be
deemed to have been paid to the Assessing Authority and
identical amount shall be treated as Government loan.
a.In the case of new Industries, it shall be for the full
tax, subject to ceiling specified in Eligibility Certificate
(i.e.) not exceeding Rs.1,725.46 Lacs (Rupees One
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W.A.No.1501 of 2015
thousand seven hundred twenty five lacs and forty six
thousand only)”
4.Condition No.8 states that in case of default of any of the conditions
mentioned in paras 3, 4, 5, 6 & 7, the deferral shall be cancelled for the
entire period for which it was granted. Condition No.12 states that tax etc.
or penalty is levied/leviable on taxable “turnover suppressions”. Turnover
suppression has been defined to mean the taxable turnover not shown or not
declared as such in the monthly returns filed by the appellant and in cases of
turnover suppression, the dealer was not eligible for the loan scheme. The
respondent issued notice dated 30.05.2013 calling upon the appellant to pay
arrears of sales tax both under the CST and the TNGST Act for the period
from 2001-2002 to 2003-2004 together with surcharge. On receipt of the
notice, the appellant by letter dated 24.06.2013 pointed out that the amount
demanded in the notice includes the Interest Free Sales Tax [IFST] deferral
availed and repaid by them and submitted that they remitted tax amount of
Rs,61,915/- shown as arrears payable for the year 2001-2002 under the CST
Act and requested for dropping further action.
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W.A.No.1501 of 2015
5.The respondent by notice dated 29.08.2013 after receiving the
appellant's letter dated 24.06.2013 informed that 'eligible IFST' means that
the taxes actually collected by the appellant during the respective
assessment years and deferred the payment of tax which have been collected
by the appellant for improving their business. Further the appellant is not
eligible to avail IFST in respect of transactions where actual collection of
taxes had not taken place. The respondent stated that the arrears demanded
in the notice dated 30.05.2013 represents the difference of taxes arrived at
on account of non-filing of prescribed declaration Forms, due to which the
appellant is not entitled to avail IFST and advised the appellant to clear the
entire arrears, failing which threatened coercive action. The appellant sent a
representation dated 03.09.2013 inter alia disputing the stand taken by the
respondent in the notice dated 29.08.2013 and that it is against the letter and
spirit of IFST deferral scheme. After referring to clause 12 of the
agreement, the appellant contended that the said clause speaks of taxable
turnover not shown or declared and in the appellant's case, it is not a case of
non-declaration of taxable turnover in the returns and they are entitled for
IFST deferral on the entire tax assessed on the taxable turnover declared in
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W.A.No.1501 of 2015
the returns. The appellant placed reliance on G.O.Ms.No.500 Industries
(MIG-II) Department dated 14.05.1990. The appellant prayed for re-
working the sales tax liability and in anticipation of the re-working with a
view to buy peace remitted a sum of Rs.3,42,701 by cheque dated
03.09.2013 being the balance tax payable as per the notice after deducting
the adhoc payment of Rs.83,35,300/-. After about three months, by notice
dated 28.01.2014 the respondent levied penal interest under section 24(3) of
the TNGST Act being a sum of Rs.1,08,88,487/-.
6.On receipt of the notice, the appellant sent their objections dated
14.02.2014 pointing out that they have not been given an opportunity to
make their submissions before issuing the notice demanding penal interest
which is in violation of the principles of natural justice. The appellant
referred to the circular issued by the Principal Commissioner and
Commissioner of Commercial Taxes dated 20.04.2001 which mandates the
notice to be issued before imposing any penalty. Referring to the decision
of the Hon'ble Supreme Court in the case of Commissioner of Central
Excise, Bolpur vs. Ratan Melting & Wire Industries [2008 (231) ELT 22
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W.A.No.1501 of 2015
(SC)], it was stated that the circulars are binding on the Department.
Reliance was also placed on the decision of this Court in Millennium
Motors vs. Commercial tax Officer, Coimbatore [2011 (39) VST 319
(Mad)], wherein the Court interfered with an order levying penal interest
without issuing notice. The stand taken by the appellant in their letter dated
03.09.2013 was reiterated and it was submitted that the amount payable
from the year 2002-03 and 2003-04 are covered under IFST deferral and
requested to adjust the amount from the adhoc payment made by them and
without considering the said request, interest has been demanded without
noting the fact that the appellant has a reserve of IFST amount sanctioned
by SIDCO. The appellant requested fifteen days time to verify as to the
correctness of the amount of arrears, the date of payment, the number of
days delay to enable them to submit detailed objections.
7.The respondent on receipt of the appellant's objections dated
14.01.2014 sent a notice dated 26.02.2014 stating that the appellant's
request for granting fifteen days time for filing objection is granted and the
appellant can also appear for personal hearing at the time of filing the
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W.A.No.1501 of 2015
objections. The appellant filed their objections dated 11.03.2014 reiterating
the earlier stand contending as to how the demand for penal interest is not
sustainable. The respondent issued notice dated 16.04.2014 demanding
penal interest as intimated to the appellant by notice dated 28.01.2014. This
notice was impugned in the writ petition. The learned Single Bench
dismissed the writ petition by the impugned order. Aggrieved over the
same, the appellant has preferred this appeal.
8.Mr.Joseph Prabakar, learned counsel appearing for the appellant
submitted that the learned Single Bench ought to have considered that the
respondent has proceeded solely on the premise that 'eligible IFST' would
mean the taxes actually collected during the respective assessment years and
erroneously concluded that the appellant is not eligible to avail IFST
deferral in respect of transactions where actual collections did not take
place. Further, it is submitted that the respondent erroneously held that the
deferral scheme would not apply to the amount of differential tax demanded
by the authority after the close of the respective financial year. Further, it is
submitted that in terms of the agreement, the appellant is eligible for
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W.A.No.1501 of 2015
deferral and full tax subject to the ceiling specified in the eligibility
certificate, i.e. not exceeding Rs.1725.46 lakhs. Further by referring to
clause 12 of the agreement, it is submitted that the agreement refers to
'taxable turnover not shown or declared' to be ineligible for the deferral,
however, in the appellant's case, the sale transactions have been duly
declared and the monthly returns have been filed mentioning the transaction
as sale against Form C/Form H. Therefore, it is submitted that the appellant
is entitled for IFST deferral on the entire tax assessed on the taxable
turnover declared in the returns including the turnover relating to
differential tax arising out of non-submission of Form C/Form H and
incorrect adoption of rate of tax. Further, it is submitted that there is no
delay in remittance of tax and the demand for penal interest is unjustified.
Without prejudice, it is submitted that the computation of interest itself is
incorrect. Therefore, it is submitted that the order which is impugned in the
writ petition demanding penal interest was liable to be set aside.
9.M/s.Dhanamadhri, learned Government Advocate (Tax) appearing
for the respondent submitted that the 'eligible IFST' means that the taxes
actually collected by the dealers and declared in the monthly returns filed by
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W.A.No.1501 of 2015
them, during the respective years and deferred in the payment of taxes,
which had been actually collected by them for improving their business. It
is further submitted that the appellant is not eligible for IFST in respect of
transactions where actual collection of taxes had not taken place. The
arrears of tax demanded by the respondent in the notice dated 30.05.2013
actually represents the difference of taxes arrived at on account of the non-
filing of prescribed declaration Forms, namely, Form C and Form H, etc.,
owing to which the appellant is not entitled to avail the IFST scheme.
Further, it is submitted that the liability to pay interest under section 24(3)
of the TNGST Act is automatic and no notice is required to be issued before
demanding interest. After referring to clause 12 of the deferral agreement, it
is submitted that 'turnover suppression' means the taxable turnover not
shown or not declared as such in the monthly returns filed by the dealer and
consequently they are not eligible for the IFST deferral scheme. Further, it
is submitted that the same analogy would apply to the turnover relating to
transactions not covered by Form C and Form H declarations, for which,
taxes had not been collected and not declared in the monthly returns as such
and therefore, rightly held to be not eligible for IFST deferral scheme.
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W.A.No.1501 of 2015
10.Heard Mr.Joseph Prabakar, learned counsel appearing for the
appellant and M/s.G.Dhanamadhri, learned Government Advocate (Tax)
appearing for the respondent.
11.The dispute between the appellant assessee and the Department
actually lies in a very narrow campus, but has been blown out of proportion
partly due to the confusion arising in the minds of the Assessing Officer and
partly due to how the appellant assessee understood the issue. The
undisputed fact being that the application submitted by the appellant for
grant of eligibility certificate was favourably considered by the SIPCOT as
duly intimated by letter dated 20.05.2002. The eligibility certificate initially
granted was for the period from 01.07.2000 o 30.06.2009. Based on the
certificate, the appellant was eligible for deferral of sales tax for a sum not
exceeding Rs.1725.46 lakhs under the deferral scheme for nine years from
the month in which the appellant's unit commenced its commercial
production, i.e. from 01.07.2000 to 30.06.2009. In terms of clause 5.5, the
appellant was required to enter into an agreement with the respondent,
which condition was complied with by the appellant and the agreement was
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W.A.No.1501 of 2015
signed between the parties on 21.06.2002. We find from the agreement that
the deferral period is as follows:
Deferral Period Financial year of repayment
01/05/2002 to 31/03/2003 01/05/2011 to 31/03/2012
01/04/2003 to 31/03/2004 01/04/2012 to 31/03/2013
01/04/2004 to 3103/2005 01/04/2013 to 31/03/2014
01/04/2005 to 31/03/2006 04/04/2014 to 31/03/2015
01/04/2006 to 31/03/2007 04/04/2015 to 31/03/2016
01/04/2007 to 31/03/2008 01/04/2016 to 31/03/2017
01/04/2008 to 31/03/2009 01/04/2017 to 31/03/2018
01/04/2009 to 31/03/2010 01/04/2018 to 31/03/2019
01/04/2010 to 31/03/2011 01/04/2019 to 31/03/2020
01/04/2011 to 30/04/2011 01/04/2020 to 30/04/2020
12.In terms of clause 1 of the agreement, the sales tax due on the sale
of the products manufactured by the appellant in their factory shall be
deemed to have been paid to the assessing authority and identical amount
has to be treated as Government loan. This is in effect is the sum and
substance of the deferral scheme. So far as the appellant was concerned, it
being a new industry, the loan was for the full tax subject to ceiling
specified in the eligibility certificate i.e. not exceeding Rs.1725.46 lakhs,
which being the upper ceiling limit. The method of repayment is as per
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W.A.No.1501 of 2015
clause 3. A charge on the appellant's property has been created in favour of
the Government in terms of clause 4 and other conditions, which the
appellant is required to comply, have been set out in clauses 5 to 7. In terms
of clause 8, if there is any default in the conditions stipulated in clauses 3, 4,
5, 6 & 7, the deferral is liable to be cancelled. In terms of clause 11, penal
interest of 24% per annum will be charged for any default in repayment of
instalments due to the Commercial Taxes Department. As noted above, the
terms of payment have been set out in clause 3 of the agreement. Clause 12
also speaks of circumstances under which the appellant would not be
eligible for the IFST deferral loan scheme. This appears to be a separate
condition apart from condition No.8 which provides for cancellation of the
entire period of deferral in the event of violation of clauses 3 to 7 of the
agreement. There is no allegation against the appellant that they have
violated any of the clauses 3 to 7 of the agreement. The stand of the
respondent hinges upon the interpretation to clause 12, which reads as
follows:
“12.Tax etc. or penalty levied/leviable on taxable
turnover suppression [for the purpose of this clause the
term “turnover suppressions” means the taxable turnover
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W.A.No.1501 of 2015
not shown or not declared as such in the monthly returns
filed by the party of the second part] are not eligible for the
loan scheme.”
13.In terms of the above clause, tax or penalty levied/leviable on
taxable turnover suppression are not eligible for loan scheme. Turnover
suppression has been defined to mean taxable turnover not shown or not
declared as such in the monthly returns filed by the appellant. It is not in
dispute that the appellant has filed their monthly returns which has reflected
all the transactions. In respect of certain transactions the appellant has
declared in the monthly returns as 'Sale against Form C', 'Sale against Form
H' and in respect of certain transactions, incorrect rate of tax was adopted.
The demand of penal interest flows from the demand dated 29.08.2013. The
appellant had been diligently prosecuting the matter, in the sense promptly
submitting their objections as and when notices were issued by the
respondent. Though the appellant had been doing so by sending reply dated
24.06.2013, 03.09.2013, 14.02.2014 and 11.03.2014, they have not been
favoured with a speaking order, nor provided an opportunity of personal
hearing, though sought for. Before issuance of notice demanding penal
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W.A.No.1501 of 2015
interest, the appellant was not issued with any notice. The interpretation
sought to be given by the respondent that no notice is required for levying
penal interest under section 24(3) may not be right in the light of the stand
taken by the appellant. What is crucial in the case on hand is whether clause
12 of the agreement could have been invoked by the respondent to make a
demand and consequently, demand penal interest.
14.As noticed above, if there is a turnover suppression, the appellant
would not be eligible for the loan scheme. Turnover suppression has been
defined to mean taxable turnover not shown or not declared as such in the
monthly returns filed by the appellant. It is not in dispute that the appellant
has filed the monthly returns and has shown the taxable turnover. The
revenue would contend that the appellant is not eligible to avail IFST
deferral scheme in respect of taxes where actual collections did not take
place owing to sales effected by use of Form C and Form H declarations.
Therefore, the question would be as to whether on account of the appellant
effecting transactions by use of Form C and Form H declarations, can it
stated to be a turnover suppression. Prima facie, in our view it cannot
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W.A.No.1501 of 2015
amount to suppression as such transactions are permissible under the Act.
Eligibility or ineligibility would have to be decided by interpreting all the
conditions in the agreement as well as in the eligibility certificate.
Therefore, the respondent has proceeded on a wrong footing. If the
respondent has to make out a case of turnover suppression for invoking
clause 12, then the respondent should establish that the turnover has not
been shown in the monthly returns filed by the dealer.
15.It is not in dispute that the turnover has been shown and the
turnover has been shown specifically that it is sale against Form C, sale
against Form H. Hence, it is not a case where the appellant has not declared
the sales in its monthly returns. If according to the respondent, the quantum
of eligibility would be directly relatable to the actual tax collected by the
appellant, then it is totally a different matter. This also needs to be decided
by interpreting the terms and conditions of the agreement and those in the
eligibility certificate. The appellant's case is that the limit mentioned in the
eligibility certificate as well as in the agreement is Rs.1725.46 lakhs and
this being mentioned as a eligibility limit, the appellant would contend that
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W.A.No.1501 of 2015
they are eligible for the IFST deferral scheme. The respondent without
noting the complexity of the matter in a casual manner has dealt with the
case resulting in passing of the order/notice impugned in the writ petition.
Apart from the objections regarding the sustainability of the stand of the
respondent that there is turnover suppression, the appellant without
prejudice has also disputed the computation of interest. In spite of objection
given by the appellant, the respondent has not considered the same and has
not passed any speaking order. In this regard, it is relevant to take note of
the stand of the appellant wherein they have stated that they are eligible to
take an amount of Rs.87,39,916/- under the deferral scheme under the
reserve amount of Rs.348 lakhs, the interest payable would work out to
Rs.2,51,260/- only and not Rs.1,08,88,487/-.
16.The argument of the respondent is that the liability to pay interest
is automatic in terms of section 24(3) of the TNGST Act. Therefore, no
notice is necessary for levying penal interest. A distinction has to be drawn
in the appellant's case owing to the fact that the appellant disputes the
allegation of the Department that they are a defaulter, i.e. there has been a
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W.A.No.1501 of 2015
turnover suppression. Unless the said issue is decided, the aspect of delay
in payment of taxes cannot be decided. Only after deciding the delay which
is alleged to have occurred, interest can be levied. Therefore, in the factual
circumstances of the case, issuance of notice on the appellant was
absolutely necessary.
17.For all the above reasons, this Court is convinced to hold that the
respondent has failed to address the crucial issues in spite of the appellant
raising objections and mechanically proceeded to issue the notice
demanding penal interest. Hence, this Court is inclined to interfere with the
notice issued by the respondent which was impugned in the writ petition
dated 16.04.2014 and remand the matter back to the Assessing Officer to
take a fresh decision in the matter after affording an opportunity to the
appellant to submit detailed objections and after giving an opportunity of
personal hearing to the authorized representative of the appellant.
18.In the result, the writ appeal is allowed, consequently the
proceedings/notice issued by the respondent dated 16.04.2014 is quashed
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and the matter is remanded to the respondent for fresh consideration in
accordance with law with due opportunity to the appellant as mentioned
above. The decision shall be in accordance with law, uninfluenced by any
of the observations made in this judgment which at best can be only a prima
facie view and it is for the respondent to exercise powers in accordance with
law. No costs. Consequently, connected miscellaneous petition is closed.
(T.S.S., J.) (R.N.M., J.)
25.02.2021
Index: Yes/ No
Speaking Order : Yes/ No
cse
To
Assistant Commissioner (CT),
Tambaram-1 Assessment Circle,
Chennai – 600 045.
https://www.mhc.tn.gov.in/judis/
W.A.No.1501 of 2015
T.S.Sivagnanam, J.
and
R.N.Manjula, J.
cse
Pre-delivery judgment in
W.A.No.1501 of 2015
and M.P.No.1 of 2015
25.02.2021
https://www.mhc.tn.gov.in/judis/
