Empee Distilleries Ltd. v. State of Kerala & Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **THURSDAY, THE 6TH DAY OF APRIL 2017/16TH CHAITHRA, 1939** **WP(C).No. 19957 of 2010 (T)** **----------------------------** **PETITIONER :** - **----------** **EMPEE DISTILLERIES LTD., NEW INDUSTRIAL DEVELOPMENT AREA, MENON PARA ROAD, KANJIKODE PO,, PALAKKAD 678 621, REPRESENTED BY ITS GENERAL, MANAGER (OPERATIONS),G.SURENDRAN.** **BY ADVS.SRI.K.P.DANDAPANI (SR.) SMT.JEBI MATHER HISHAM SRI.MILLU DANDAPANI** ## **RESPONDENTS :** - **-----------** **1. STATE OF KERALA, REPRESENTED BY** - **SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, THIRUVANANTHAPURAM-695 001.** **2. THE COMMISSIONER OF COMMERCIAL TAXES, PUBLIC OFFICE BUILDINGS, OPP.MUSEUM, THIRUVANANTHAPURAM.** **3. THE ASSISTANT COMMISSIONER(ASSESSMENT), SPECIAL CIRCLE, COMMERCIAL TAXES,PALAKKAD.** ## ***ADDL.R4 IMPLEADED :** **4. THE SECRETARY KERALA STATE BEVERAGES (MANUFACTURING AND MARKETING) CORPORATION LIMITED, PB NO.2263, SASTHAMANGALAM,THIRUVANANTHAPURAM - 695010** - ***ADDL. R4 IS IMPLEADED AS PER ORDER DT 9/3/2011 IN IA 3740/11.** **R1 TO R3 BY SPL. GOVERNMENT PLEADER** **SRI.C.E.UNNIKRISHNAN ADDL.R4 BY SRI.C.S.AJITH PRAKASH,SC,** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 06-04-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **bp** **WP(C).No. 19957 of 2010 (T)** ## **APPENDIX** ## **PETITIONER'S EXHIBITS :** **P1: PHOTOCOPY OF JUDGMENT DT 16/2/2010 IN WPC NO.2434/2010 D. P2: PHOTOCOPY OF JUDGMENT DT 11/3/2010 IN WPC NO. 7918 OF 2010 L. P3: PHOTOCOPY OF APPLICATION FOR SETTLEMENT OF ARREARS UNDER AMNESTY SCHEME, 200809 SUBMITTED BY THE PETITIONER IN THE PROFORMA SUPPLIED BY THE R3, ON 1/04/2010. P4: PHOTOCOPY OF INTIMATION DT 11/6/2010 RECEIVED BY THE PETITIONER ISSUED BY THE R3. P5: COPY OF PETITION DT 21/6/2010 SUBMITTED BY THE PETITIONER BEFORE THE R2 VIDE NO.EDL/TOT201011/03. P6: PHOTOCOPY OF PETITION DT 16/6/2010 SUBMITTED BY THE PETITIONER BEFORE THE HONOURABLE MINISTER FOR FINANCE, KERALA. P7: COPY OF CIRCULAR NO.13/2010 ISSUED BY THE R2 VIDE REF. NO.C1-47960/09/CT DT 30/6/2010. P8: COPY OF KSBC/FM/021/2010-11/529 DATED 28/2/2011 BY FINANCE MANAGER TO THE PETITIONER. P8(A): COPY OF COMMUNICATION OF THE R3 TOT HE ADDITIONAL R4 VIDE REF.NO.A2.1624/09 DT 22/2/2011. P8(B): COPY OF FROM NO.16 DT 22/2/2001 BY THE R3 TO THE ADDITIONAL R4. P9: COPY OF STATEMENT DT 10/3/2011 REFERRED TO IN THE AFFIDAVIT.** **RESPONDENT'S EXHIBITS : NIL.** **//TRUE COPY//** **P.A. TO JUDGE** **bp** *CR* ## K. VINOD CHANDRAN, J - - - - - - - - - - - - -- - - - - - - - - - - - - - - - W.P(C) No. 19957 of 2010 - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 06[th] day of April, 2017 J U D G M E N T The essential contention raised by the petitioner, is as to the adjustment of the amounts paid on 02.03.2010, by virtue of a conditional order, to the Amnesty Scheme brought into force on 01.04.2010. 2. The petitioner, an assessee under the Kerala General Sales Tax Act, 1963 (for short “KGST Act” only), had dues with respect to the various assessment years from 1998-99 to 2003-04; except 2002-03. The question as to whether the excise duty component can be included in the turnover of the manufacturer was agitated for long years before this Court and the Hon'ble Supreme Court. The decision in State of Kerala v. Maharashtra Distilleries Ltd. WPC.No.19957/2010 : 2 : [(2005) 11 SCC 1] settled the issue and from 05.01.1999 by virtue of the amendment made to the Foreign Liquor Rules, the Hon'ble Supreme Court held that excise duty was liable to be included in the turnover of the manufacturer. The petitioner/assessee was also a party before the Hon'ble Supreme Court. The assessments made including such component, in the taxable turnover, were challenged in statutory appeals. There was also penalty imposed in the various years, which was challenged by way of revision before the Commissioner. 3. In the appeals against the assessments for the various years, pending before the Tribunal, stay petitions were rejected. The appeals were also finally heard but no orders were passed. Pending disposal of the appeals, recovery was threatened by the Department. Specifically, WPC.No.19957/2010 : 3 : garnishee proceedings were taken against Andhra Bank, with whom petitioner maintains a current account and the Kerala State Beverages Corporation, who purchases the finished product of the petitioner. The petitioner approached this Court with W.P(C) No.2434/2010, against the garnishee proceedings, which was disposed of by Ext.P1 judgment dated 16.02.2010. This Court in Ext.P1, noticed that the recovery threatened by the Department related to four different components being the tax liability, interest thereon, penalty and interest on penalty. The penalty aspect was not the subject of appeals before the Tribunal and was not agitated in the said writ petition. As to the tax and interest payable thereon, the Court found that only nominal amounts were paid towards the liability. Garnishee proceedings were kept in abeyance on condition WPC.No.19957/2010 : 4 : of the petitioner depositing a sum of Rs.4,00,00,000/- (Rs. Four crores only) within a period of one week. The Tribunal was directed to pass final orders in the appeals which were heard and reserved for orders. Ext.P1 judgment was on 16.02.2010. 4. The amounts directed to be paid were paid on 02.03.2010 by a Demand Draft. A separate writ petition numbered as W.P(C)No.7918/2010 was filed against the recovery of penalty and interest thereon, since the revisions were pending before the Commissioner and the recovery was stayed till the disposal of the revisions, by Ext.P2 judgment. 5. On 01.04.2010, the Government extended a scheme of amnesty, brought in originally under Section 23B of the KGST Act, by Kerala Finance Act, 2008. The WPC.No.19957/2010 : 5 : earlier scheme had and was afresh made expired applicable at the inception of the financial year 2010-2011. The scheme offered reduction in interest and penalty for expeditious settlement of dues. The petitioner applied under the scheme. An order was issued at Ext.P4 directing the petitioner to pay Rs.6,66,92,983/- under the amnesty scheme. The order produced at Ext.P4 also showed the adjustment details of Rs.4 crores paid on 02.03.2010. The amounts so paid were apportioned to the interest liability for the various years as provided under Section 55C of the KGST Act. The petitioner then filed Exts.P5 and P6 representations before the Commissioner of Commercial Taxes and the Minister for Finance seeking consideration of Amnesty Scheme without appropriation of Rs.4 crores deposited, prior to the implementation of the scheme and WPC.No.19957/2010 : 6 : sought for the said amounts, to be adjusted to the dues then, calculated under the amnesty scheme. The above writ petition was filed for the very same reliefs. 6. Obviously the petitioner did not pay any amounts under the order issued, as per the amnesty scheme, produced at Ext.P4. The petitioner moved I.A No.9378/2010, pointing out that the time for deposit under the amnesty scheme stood extended up to 30.09.2010. The time was again extended up to 31.03.2011. The petitioner failed even then to pay the amounts in the extended period. While the writ petition was pending, the Assessing Officer issued Ext.P8(a) and P8(b) notices to the Kerala State Beverages Corporation, pointing out the dues determined under the amnesty scheme and directed the Corporation, as garnishee, to hold any money due to the WPC.No.19957/2010 : 7 : petitioner from the Corporation and disburse it to the department to the extent of the dues. 7. The petitioner sought for a stay of the said notices issued to the Corporation, in which, by an interim order dated 09.03.2011, the petitioner was directed to pay an amount of Rs.1,00,00,000/-. This order was not complied with. A modification was sought by I.A No.4591/2011 in which on 15.03.2011 an order was passed directing payment of Rs.1,50,00,000/- on or before 30.03.2011. The petitioner had also filed an amended writ petition on 02.07.2010 seeking additional relief of declaring Section 55C of the Act as ultra vires and inconsequential. The State filed an appeal from the orders dated 09.03.2011 and 05.03.2011, to the Division Bench. The Division Bench called for the writ petition also and when both were posted WPC.No.19957/2010 : 8 : together, it was submitted that the Corporation had complied with the garnishee order and the amounts under the amnesty scheme were paid. This Court has called for and verified the Judges Papers of the writ petition and appeal. The petitioner specifically withdrew the challenge against Section 55C. The Division Bench passed the following order on 05.04.2011 in this writ petition:- “Since the learned Counsel for the petitioner submits that the constitutional validity of Section 55C is not under challenge and he is not pressing the ground raised, the Single Judge will hear the writ petition on other matters. The Registry will post the matter before the Single Bench after vacation.” 8. By virtue of the submission made before the WPC.No.19957/2010 : 9 : Division Bench, the petitioner cannot raise any challenge against Section 55C of the Act or the appropriation made. In any event, the challenge could not have been maintained since the issue stands covered by the judgment of the Division Bench of this Court in Aby Engineering and Consultants (P) Ltd v. Assistant Commissioner in W.A No.2034/2009 (04.11.2009). The only remaining issue in the writ petition is, as to appropriation of the amounts under Section 55C and the dues under the amnesty scheme. The learned Senior Counsel appearing for the petitioner has placed reliance on the judgment of this Court reported in 2010(3) KHC 871 (M/s.Alwaye Sugar Agency v. Commercial Tax Officer, Alwaye and another) as confirmed by a Division Bench. 9. Therein, the assessee on hearing about a WPC.No.19957/2010 : 10 : declaration of the amnesty scheme in the budget speech of 2010, made a specific request dated 20.03.2010, referring to the scheme and requesting the recovery to be kept in abeyance. To show his bonafides, a payment of Rs.75,000/was made, in token of his willingness, to pay the arrears as determined under the amnesty scheme. The Scheme was announced on 01.04.2010 and the Assessing Officer asserted appropriation of the amounts paid prior to the implementation, towards the interest dues. The scheme was applied after such appropriation. The assessee stood to loose insofar as the amounts paid having been appropriated towards the interest itself, which otherwise would have been waived to the extent as borne out from the scheme. The learned Single Judge found on facts that the appropriation could not have been made, especially WPC.No.19957/2010 **==> picture [25 x 9] intentionally omitted <==** when the deposit was made as a token, to show the bonafides of the assessee and to stay the recovery till the implementation of the scheme. The Division Bench too in W.A 1630/2010 upheld the decision of the learned Single Judge. Much reliance has been placed on the afore cited judgment by the learned Senior Counsel to urge a similar treatment in the case of the petitioner also. 10. The learned Special Government Pleader (Taxes) opposes such treatment pointing out the gross dissimilarity on facts. This Court is also of the opinion that facts are quite distinct and not comparable. In the case of the petitioner, the dues were existing from 1998-99 onwards and despite the question raised in appeals also having been settled in the year 2005, no payment of tax was made including the excise duty component in the WPC.No.19957/2010 : 12 : taxable turnover. Recovery proceedings pending appeal, specifically garnishee proceedings, were challenged in W.P (C) 2434/2010 wherein a direction was issued to pay up Rs.4 crores, as against the defaulted tax and interest due thereon. The petitioner made such payment by virtue of the directions in the judgment, on 02.03.2010 and immediately the same gets appropriated first towards the interest and balance towards the tax component under Section 55C; the interest of the earlier years being liquidated first. After such appropriation, there was nothing remaining to be adjusted towards the tax component. The petitioner had also made the deposit as a condition for stay of recovery and otherwise the department would have proceeded with the recovery and the entire dues would have been paid by the garnishee. WPC.No.19957/2010 : 13 : There was also no whisper about the amnesty scheme, in the writ petition, which was not even declared as on the date of judgment in W.P(C) No.2434/2010. Even when the payment was made on 02.03.2010, the scheme was not implemented. 11. More apposite, in the case of the petitioner would be the decision relied on by the learned Special Government Pleader (Taxes); in W.A No.914/2013 dated 01.11.2013 (The Asst.Commissioner (Assessment) & others v. G. Viswanathan). Therein the assessee's property was proceeded against for recovery and the same was sold in public auction for an amount of Rs.43,00,000/- which sale stood confirmed. The sale amount was lying as revenue deposit and was not transferred to the Taxes Department. The assessee was in arrears of sales tax since WPC.No.19957/2010 : 14 : 1970--71 and he applied under the Amnesty Scheme during the year 2008-09 and cleared the entire sales tax dues. The assessee then made a claim for the sale proceeds in the auction sale; which prayer was allowed by the learned This was the State's Single Judge. despite contention that the assessee had not disclosed the sale, in his application for amnesty scheme. The State also took up a contention that even otherwise the amount obtained on sale of the property would have been appropriated towards Section 55C and only the balance interest and penalty would have been waived to the extent permitted by the scheme. The Division Bench, in appeal filed by the State, reversed the judgment of the learned Single Judge and found that appropriation under Section 55C does not depend upon the transfer of sale proceeds from one WPC.No.19957/2010 : 15 : department to another. On the sale proceeds coming into the coffers of the Government, the appropriation would be automatic. Neither could the assessee claim refund on that basis nor could the Taxes Department claim future interest, on the premise that the appropriation would occur only on the transfer being effected to the Commercial Taxes Department. The arrears of the assessee under the amnesty scheme would have been reduced to the extent of the sale proceeds, the minute it comes into the coffers of the Government was the finding. The appropriation would also be, first of the interest liability and in the context of the sale proceeds being not in excess of the interest liability, the amounts determined under the amnesty scheme would have been the same. 12. In point is also another Division Bench WPC.No.19957/2010 : 16 : judgment of this Court, reported in 2010 (2) KLT 458 (Assistant Copmmissioner (Assessment) v. M/s Martin & Harris Pvt. Ltd.). Therein the assessee, who applied under the Amnesty Scheme did not pay the arrears of tax in terms of sub clause (4) of Section 23B, which resulted in the benefit being withdrawn under sub-clause (5). At that time a rectification application by the assessee, was pending before the Assessing Officer, which, later stood allowed reducing the liability of the assessee. The assessee contented that, rectification with respect to short credit of tax paid; if had been allowed earlier, then the assessee would have paid the amounts under the amnesty scheme. Therein also, the learned Single Judge directed reconsideration of the benefit of amnesty scheme despite the time frame under the scheme having expired. In WPC.No.19957/2010 **==> picture [26 x 9] intentionally omitted <==** appeal, the Division Bench found that under sub clause (7) of Section 23B if there was any dispute pending with respect to the assessment or demand and any modification was made, to the benefit of the assessee, even after settlement under the amnesty scheme, the assessee could have claimed refund. The assessee having not remitted the amount due under the amnesty scheme, within the time provided, the benefit was found to have been rightly declined. 13. The Hon'ble Supreme Court in Hemalatha Gargya v. Commissioner of Income Tax (A.P.) ((2003) 9 SCC 510) found the Voluntary Disclosure of Income Scheme, under the Income Tax Act, to be a departure from the general rule of payment of tax, before making a declaration of income. The exception carved out however WPC.No.19957/2010 : 18 : mandates payment within the time provided under the Scheme, was the binding declaration. When benefit is claimed under such schemes, the assessees were held to be bound to comply strictly with the conditions and there was no scope for equitable considerations. Union of India v. Nitdip Textile Processors (P) Ltd. & Anr. (2011 (4) KLT SN 134 (C.No.145)/ SC (2012) 1 SCC 226) also found a Kar Vivid Samadhan Scheme to be “a complete code in itself and statutory in character and exhaustive of matter dealt with therein” (sic). Though liberal construction was held to be the norm, in its implementation, extension beyond the conditions prescribed under the Scheme was found to be impermissible. The amnesty scheme, which is the subject of the writ petition is by its nature similar to the schemes dealt with in the afore cited decisions. WPC.No.19957/2010 : 19 : 14. The claim of the petitioner herein is that the appropriation made, ought not to have been carried out and the said amounts applied to the amounts determined under the amnesty scheme. The result of such computation would be that almost 90% of the interest arrears, which was cleared on appropriation of Rs.4 crores, would have been waived under the Scheme. It is also contended that a Full Bench of this Court in 2010 (18) KTR 414 (Ker) [State of Kerala v. Western India Cosmetic and Health Products Ltd.& Others] had granted the benefits of the scheme even after the period expired. Therein the Tribunal followed a binding precedent of a Division Bench decision and allowed the appeal of the assessee. In a revision filed by the State, the earlier decision was doubted by a bench of co-ordinate strength and WPC.No.19957/2010 : 20 : referred to the Full Bench. The Full Bench overturned the decision of the Division Bench holding fort for about six years, resulting in the revision filed by the State being allowed. Substantial enhancement of tax and interest liability was visited on the assessee and the Full Bench noticing the fact that, but, for the favourable orders of the Tribunal, the assessee would have settled the dues under the Amnesty scheme, directed the Assessing Officer to grant amnesty benefit reducing the interest in terms of the scheme and allowing the settlement of liability by demanding further interest for the amounts determined under the scheme, at the rate of 1% per month from the last date prescribed for payment, under the amnesty scheme. Again, it has to be noticed that there can be no similarity in facts found from the said decision. There is no such contingency WPC.No.19957/2010 : 21 : arising in the above case; where a prejudice was caused to the assessee by reason only of a decision being reversed after considerable time and the assessee on account of favourable orders issued by the Tribunal, not having opted under the scheme. ` 15. The assessee had been contesting the matter for long with other similar assessees and the questions raised were settled by the Hon'ble Supreme Court in Maharashtra Distilleries Ltd. (supra). The assessee failed to file revised returns or pay up the tax on the ground of pending appeals before the statutory authorities and the Tribunal. It was on the basis of the pendency of the appeals that the assessee approached this Court with a writ petition seeking stay of garnishee proceedings when the appeals were pending. But for the conditional directions WPC.No.19957/2010 : 22 : issued, the recovery would have concluded with the garnishee paying up the amounts. Then there could have been no claim for consideration under the amnesty scheme. The payment of Rs.4 crores was in lieu of the garnishee proceedings and there could be no other appropriation made of the said amounts, other than that provided under Section 55C. 16. The decision of the Hon'ble Supreme Court in 2015 KHC 4558 [M/s. Modern Hotel v. Commissioner of Excise and others] is also apposite. The appellant firm therein was running a bar attached hotel and the partnership was re-constituted by admitting one another who had dues to the Government by way of Abkari arrears. This dis-entitled the firm from seeking a renewal of license. The firm preferred a writ petition in the High WPC.No.19957/2010 : 23 : Court wherein by interim orders, Excise authorities were directed to grant renewal on condition of payment of Rs.20,00,000/-. The writ petition was eventually dismissed and in appeal, for the subsequent year also, a similar order was passed on the very same condition. In the next year too, there was an order to renew the licence on payment of a further Rs.10,00,000/-. All in all Rs.50,00,000/- were paid by virtue of interim orders and eventually the writ appeals too were dismissed. 17. The assessee approached the Hon'ble Supreme Court and when that was pending, in 2008, there was an amnesty scheme brought in by the Government under which the defaulting partner settled his arrears. The Excise department also issued a clearance certificate to the defaulting partner. The Hon'ble Supreme Court in the WPC.No.19957/2010 : 24 : Civil Appeal, by an interlocutory order directed refund of Rs.50,00,000/- subject to the result of the appeal, on furnishing of security to the satisfaction of the Excise authorities. When the appeal was taken up for final hearing, the appellant was not keen to press the appeal and sought for absolving him from the liability created by the security furnished for Rs.50,00,000/-. 18. The State opposed the prayer raising a claim for Rs.50,00,000/- paid by virtue of the interim orders; which sums according to the State was appropriated towards interest dues of the defaulting partner even prior to the amnesty scheme. The settlement under the amnesty scheme was stated to be after appropriation of the said amounts. It was held that the amnesty scheme, was confined to the arrears outstanding at the relevant time WPC.No.19957/2010 : 25 : which was after appropriation of Rs.50,00,000/- paid by virtue of the interim orders issued by the High Court. There being no dispute of actual outstanding amounts of the principal and interest at the time of payment, in compliance of the conditions imposed by the High Court, the defaulting partner or the appellant firm had no claim to the said amounts; was the finding. It was noticed by the Hon'ble Supreme Court that as it is, large part of interest amounting to several crores could not be recovered on account of shown the Government grace by by formulating the amnesty scheme. It was held that the exercise of writ jurisdiction to help the defaulter, in that circumstances would be inappropriate. The appeal was dismissed and the appellant was directed to redeposit Rs.50 lakhs along with interest from the date of its receipt. WPC.No.19957/2010 : 26 : 19. The facts are almost similar in the instant case. The petitioner herein complied with the conditional interim order for stay of recovery of defaulted tax and interest admittedly due from the petitioner. On such payment, as per the statutory prescription of Section 55C the amounts stood appropriated towards interest. Without the conditional stay, the recovery as against the garnishee would have settled the entire dues. An amnesty scheme was later introduced, in which the petitioner had applied. Even the amounts determined were not paid and had to be realised through garnishee proceedings. 20. The amounts determined under the amnesty scheme having been realised what the petitioner claims essentially is the refund of the amounts paid in compliance of the judgment at Ext.P1. The said direction was in a writ WPC.No.19957/2010 : 27 : petition filed by the petitioner to keep the garnishee proceedings in abeyance. The petitioner invited the order, which stayed further recovery. On the condition being complied with, the amount got appropriated under Section 55C wiping off the interest liability over the years, to a large extent. Considerable benefit was derived from the amnesty scheme also. The clock cannot be put back and Modern Hotel applies squarely. 21. The petitioner cannot claim appropriation, to be kept in abeyance till the implementation of the amnesty scheme and then, apply the terms of the scheme to waive interest to the extent permitted and adjust the amounts paid earlier to the satisfaction of the amounts determined under the scheme. The prayer is also made after the appropriation, which as per the earlier precedents WPC.No.19957/2010 : 28 : has been held to be automatic. The appropriation under Section 55C is a statutory mandate and consequence, which neither the Commissioner nor the Minister nor even this Court would be empowered to interfere with. The equitable jurisdiction is also not possible of invocation, since the facts do not commend it and the nature of the scheme, as held by the Hon'ble Supreme Court also stands against it. Writ petition is found to be devoid of merit and the same would stand dismissed. No costs. Sd/- - (K. VINOD CHANDRAN, JUDGE) jma //true copy// P.A to Judge