The Karnataka High Court, while considering a series of petitions filed by the dealers under the Karnataka Value Added Tax, 2003, ruled that under the new amnesty scheme of the Karnataka Government, i.e, ‘Karasamadhana’ Scheme, the amounts paid the dealers during the pendency of the concerned appeals shall be first appropriated towards the tax arrears first.
The scheme was announced by the Chief Minister of Karnataka while presenting his state budget speech for the year 2017-18 with a view to help the dealers and companies to clear all pending dues of taxes so as to shift to the new GST system with a clean slate.
Under this scheme, the dealers were allowed to clear their dues from earlier taxes. They had to pay only 10 % of the interest along with the principal tax assessed by the authorities. Under the scheme, the cases and appeals before various courts and tribunals were also to be withdrawn to avoid litigations. However, the money many companies deposited as deposit while challenging tax assessments was appropriated by the authorities against the interest and against the tax amount. This made them pay more tax, interest and penalty.
Aggrieved by the action of the department, Companies such as Castrol India Ltd, WS Retail, Nokia India etc. approached the High Court through a writ petition.
Before the High Court, the petitioners contended that the ‘adjustment’ during the pendency of the appeals etc., which were required to be withdrawn by the Dealers first should have been made first against the arrears of ‘tax’ as per the adjudication orders and the balance amount of tax and 10% of interest and penalty as per the adjudication order was only required to be paid by them to avail the benefit of ‘KSS 2017’.
The Department, on the other hand, contended that under Section 42(6) of the KVAT Act, 2003, they are entitled to adjust these payments or deposits subject to appeals against the outstanding ‘interest’ amount first and only the balance amount can be adjusted against the tax or penalty parts of the total demand raised by the Assessing Authority.
Justice Vineet Kothari, while disposing of the appeals in favour of the petitioners stated that the object of the scheme was to pave the way and to provide the clean slate for the new indirect regime of GST. The Court opined that the provisions of the scheme should be interpreted in favour of the tax payers as per the well settled provisions of interpretation applicable to the taxing statues namely that the benefit of doubt or benefit in case of two views being possible, the one which is more favourable to the Dealers has to be adopted by the Courts.
“Viewed from this angle and few of the propositions laid down for interpreting similar Schemes even under the Income Tax Act, and VAT or other Tax laws, it clearly appears to this Court that the stand of the Respondents-Department in the present cases, is incongruous and unsustainable and the same defeats the purpose of the Scheme for the Dealers, who voluntarily opted for the same giving up their valuable rights of disputing the entire liability as per the adjudication orders passed by the Assessing Authorities and putting an end to the litigation and paying the remaining arrears of tax, interest and penalty as per the provisions of the Scheme and thus giving finality to the dispute and achieving the twin purposes of the Scheme itself,” the Court said.
The petitions were allowed by the Court by directing the department to re-compute the arrears of tax, interest and penalty.
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