M/S Maxim Traders Private Limited v. Assistant Commissioner (Assessment), Special Circle II, Commercial Taxes, Ernakulam and Tahsildar (RR), Kannayanannur Taluk, Ernakulam

## **`IN THE HIGH COURT OF KERALA AT ERNAKULAM`** # **`PRESENT`** ## **`THE HONOURABLE MR. JUSTICE GOPINATH P.`** ``` THURSDAY, THE 30[TH] DAY OF MAY 2024 / 9TH JYAISHTA, 1946 WP(C) NO. 19547 OF 2015 ``` ## **`PETITIONER:`** ``` M/S. MAXIM TRADERS PRIVATE LIMITED MEENUS BUILDING, NH 47, BYE PASS, EDAPALLLY, COCHIN -682024 REPRESENTED BY THE MANAGING DIRECTOR. ``` ## **`BY ADV SRI.K.V.GOPINATHAN NAIR`** ## **`RESPONDENTS:`** ``` 1THE ASSISTANT COMMISSIONER (ASSESSMENT) SPECIAL CIRCLE II, COMMERCIAL TAXES, ERNAKULAM, PIN -682 035. ``` ``` 2THE TAHSILDAR (R.R) KANNAYANNUR TALUK, ERNAKULAM, PIN -682 011. ``` ## **`BY ADV.SMT. THUSHARA JAMES (SR GP)`** ``` THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 30.05.2024, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` W.P.(C) No.19547/2015 ## **-:2:-** ## **J U D G M E N T** The petitioner is an assessee under the provisions of the Kerala Value Added Tax Act, 2003 and the Rules framed thereunder. For the period from July to November of the financial year 2011-2012, there occurred a delay in remittance of tax under the provisions of the Kerala Value Added Tax Act, 2003, as a result of which, assessment proceedings were completed against the petitioner, finalising the demand for the said period to be Rs.1,22,65,972/- by way of tax, including interest. An amount of Rs.19,10,35,500/- was also imposed by way of penalty. The matter was sent for revenue recovery. On receipt of notice from the 2[nd] respondent (the Tahsildar (RR)), the petitioner remitted the tax with interest due (amount of Rs.1,22,65,972/-) by way of e-payment directly to the 1[st] respondent. The receipts are on record as Ext.P1. In respect of the penalty order issued by the 1[st] W.P.(C) No.19547/2015 ## **-:3:-** respondent, the petitioner filed a statutory appeal before the First Appellate Authority. As a condition for stay, the petitioner remitted a sum of Rs.36,79,791/-, which was paid by way of demand draft to the 2[nd] respondent, as revenue recovery proceedings had been initiated to recover the amount of penalty also. The petitioner has approached this Court being aggrieved by the fact that collection charges on the sum of Rs.1,22,65,972/- (an amount of Rs.9,19,948/-) and collection charges on the amount of Rs.36,79,791/- (an amount of Rs.2,75,984/-) have been imposed on the petitioner. 2. The learned counsel appearing for the petitioner submits that the demand for collection charges in the facts and circumstances of the case is absolutely unsustainable, as no recovery proceedings were initiated except the issuance of notice demanding the payment, and in such circumstances, going by the law laid down by a Division Bench of this Court in **Usha Mary v. Kerala Financial Corporation and Others;** 2009 (4) KHC 254, no amount W.P.(C) No.19547/2015 ## **-:4:-** could have been collected from the petitioner towards collection charges. Considerable emphasis was placed on paragraph Nos. 3 and 4 of the aforesaid judgment to contend that when only notice under Section 7 or Section 34 of the Kerala Revenue Recovery Act, 1968, (hereinafter referred to as ‘the Act’) had been issued and the amount is immediately paid there cannot be any collection charges. It is submitted that even in the case of the institutions notified under Section 71 of the Act, in respect of which this Court recognized the right to collect 1% of the amount as collection charges, this Court has clarified in paragraph No.3 of the aforesaid judgment that if notices alone had been issued under Section 7 or Section 34 of the Act and amounts had been immediately paid, such charges also cannot be levied. 3. The learned Senior Government Pleader refers to the judgment of a Division Bench of this Court in W.A.No.1107 of 2009 to contend that even when the defaulter had paid amounts as permitted by this Court to W.P.(C) No.19547/2015 ## **-:5:-** settle a liability with a notified institution (a Bank), this Court held that collections charges could be collected on the amounts so paid by the defaulter. It is submitted that though this Court had initially taken a view in favour of the defaulters, the matter was taken up by the State before the Supreme Court and by the judgment reported as **State of Kerala and Others v. Shibu Kumar P.K and Another;** (2019) 13 SCC 577 **,** the judgment of this Court was set aside and thereafter the Division Bench in the judgment in W.A.No.1107 of 2009 took the view that collection charges were payable. 4. Having heard the learned counsel for the petitioner and the learned Senior Government Pleader, I am of the view that, in the facts and circumstances of this case, no collection charges could be levied on the amounts paid by the petitioner. It is clear from the judgment of the Division Bench in **Usha Mary (Supra)** that the main issue considered by this Court was in respect of collection charges payable on account of revenue recovery W.P.(C) No.19547/2015 ## **-:6:-** proceedings initiated for recovery of amounts due to institutions notified under Section 71 of the Act. Section 71 of the Kerala Revenue Recovery Act reads as follows: ## **“71. Power of Government to declare the** **Act applicable to any institution** - The Government may, by notification in the Gazette, declare, if they are satisfied that it is necessary to do so in public interest, that the provisions of this Act shall be applicable to the recovery of amounts due from any person or class of persons to any specified institution or any class or classes of institutions, and thereupon all the provisions of the Act shall be applicable to such recovery. Provided that such specified institution or class or classes of institutions or autonomous bodies, as the case may be, shall be liable to pay collection charges for the recovery of the amounts, at such rate and in such manner as may be prescribed by the Government”. This Court, interpreting the provisions of the above proviso to Section 71 read with Rule 5 of the Kerala Revenue Recovery Rules, came to the conclusion that the State was authorized to collect collection charges in respect of W.P.(C) No.19547/2015 ## **-:7:-** amounts recovered on behalf of institutions notified under Section 71 of the Act and also justified the collection of service charges at 1% in respect of the amounts paid directly by defaulters to the institutions notified under Section 71 of the Act. However, in paragraph No.3 of the aforesaid judgment ( **Usha Mary (Supra)** ), this Court held as follows: 3. In order to appreciate the rival contentions, it is necessary to refer to the scheme of the Act and the rules. The Kerala Revenue Recovery Act, 1968 was enacted to consolidate and amend the laws relating to the recovery of arrears of public revenue in the State of Kerala. Under Section 71, appearing in Chapter IV, the Government has been vested with power to declare the Act as applicable to any institution. In the amendment introduced with effect from 27/02/1980, it is stated that the Act is also intended for the realization of collection charges from all the institutions and autonomous bodies on whose behalf recoveries are made by the Government. Section 2(a) defines arrear of public revenue due on land which reads as follows: **2(a) “arrear of public revenue due on land”** means the whole or any portion of W.P.(C) No.19547/2015 **-:8:-** any kist or instalment of such revenue not paid on the day on which it falls due according to the kistbandy or any engagement or usage. Section 2(d) provides for cost of process. It is an inclusive definition. The provision reads as follows: 2(d) “cost of process” includes - - _i._ the batta paid under Section 76; _ii._ the expenses incurred with the attachment of any property and the removal, storing and guarding of any property attached; and iii. the cost of publication of sale; Section 2(i) deals with the mode of recovery prescribed under the Rules. S.2(j) provides for public revenue due on land which reads as follows: 2(j) “public revenue due on land” means the land revenue charge on the land and includes all other taxes, fees and cesses on land, whether charged on land or not and all cesses or other dues payable to the Government on account of water used for purposes of irrigation. Section 5 deals with recovery of arrears of public revenue due on land which reads as follows: ## “ **5. Arrears of public revenue due on land how recovered-** Whenever public W.P.(C) No.19547/2015 **-:9:-** revenue due on land is in arrear, such arrear, together with interest, if any, and cost of process may be recovered by on or more of the following modes- - _(a)_ by attachment and sale of the defaulter's movable property, (b) by attachment and sale of the defaulter's immovable property. (c) by appointing an agent for the management of the defaulter's immovable property”. It can be seen from the above provisions that the arrears of public revenue is to be recovered along with interest and cost of process by taking recourse to three methods: 1. The attachment and sale of defaulter's movable property. 2. Immovable property or by appointing an agent for managing defaulter's immovable property of. 3. By arrest and detention of the defaulters. Chapters 2 and 3 deal with the procedure for attachment and sale of the property of the defaulter. Elaborate procedure has been prescribed under those two chapters. A proviso has been introduced under Section 71 by Act 31 of 2007 effective from 27/02/1980, making the institutions or autonomous bodies liable to pay the collection charges for the recovery of the amounts as prescribed by the W.P.(C) No.19547/2015 **-:10:-** Government. Section 76 provides that persons employed in serving notices or other process under the Act shall be entitled to batta as fixed by the Government. Section 77 provides that the interest and cost of process incurred in the process of recovery shall be recoverable from the defaulter and the surety. Under Section 86, the Government is bestowed with power to make rules to carry out all or any of the purposes of this Act. The Kerala Revenue Recovery Rules, 1968 were thus framed under the authority of Section 86. Rule 4 provides for batta and other charges. A table is also provided for the charges. The rule and the table read as follows: **Rule 4:** Batta and other charges at the rates specified in column (2) of the Table below; shall be levied in respect of the item specified against them in column (1) of the said Table. These charges shall be recovered from the defaulters along with the arrears due. ## **TABLE** |Item|Rate| |---|---| |(1)|(2)| |i.<br>Demand<br>notice<br>fee<br>(either under Section 7<br>or under Section 34).|Rs.P<br>[Rs. 2 per demand<br>notice]| |ii. Fee for the distraint and<br>sale of movables|1.00 (per case)| |iii. Fee for the attachment<br>and sale of immovable to<br>meet the cost of labour|1.00 do.| |iv. Tom tom charges|1.00 do| W.P.(C) No.19547/2015 **-:11:-** |v. Publication charges|Actual expenses incurred| |---|---| |vi. Transport charges or<br>other charges|At the rates prescribed<br>in the Financial Code| |vii.For arrest and detention<br>in civil jail|Subsistence allowance at<br>such rates as may be<br>specified by the State<br>Govt,<br>for<br>judgment<br>debtors under Section 57<br>of the Code of Civil<br>Procedure, 1908| |viii. Collection charges|[5% of the arrears to be<br>collected, when the<br>arrears does not exceed<br>Rupees Five lakhs and<br>7.5% of the arrears to<br>be collected, when the<br>arrears exceed Rupees<br>Five Lakhs.]| Rule 5 deals with the collection charges. The Rule reads as follows: 5(1) Collection charges at the rate of 5 percent of the arrears to be collected under the provisions of the Act on behalf of any institution notified under Section 71 or collected on behalf of any institution under Section 68 [when the arrears does not exceed Rupees Five Lakhs and at the rate of 7.5% when the arrears exceed Rupees Five Lakhs] shall be realised from the defaulters and accounted as arrears to such institutions. (2) The collection charges shall be deducted from the amount recovered and the balance alone shall be payable to the institution. W.P.(C) No.19547/2015 ## **-:12:-** Under Rule 5(3), it is stipulated that the institutions on whose behalf recovery is made, shall be liable to pay 1% amount in case institutions collect the amounts after the initiation of the revenue recovery proceedings. We have made it clear in several judgments (WP(C) No 22509/08 and other connected cases) that there is no liability to pay collection or service charges in case the defaulters pay the arrears directly to the institution pursuant only to a notice under Section 7 or 34. In other words, the liability to pay such charges arises only in cases where further steps towards attachment or sale are taken. Therefore, it is made clear that in the cases before us, our consideration is in respect of cases where in the process of recovery some steps other than mere notice under Section 7 or 34 have been taken. ## Thereafter, considering the provisions of Rule 5 of the Kerala Revenue Recovery Rules this Court held as follows: 4. There are two main issues to be considered on the questions mooted before us. The first main question is on the vires of Rule.5. It is a settled position that the rule making authority being a delegate under the statute, such delegate cannot travel beyond the scope of the specific authority conferred on it. In other words, unless the W.P.(C) No.19547/2015 ## **-:13:-** Government is bestowed with power under the Act to make rules to realize collection charges or service charges, it cannot levy such charges by making provision under the rules, being a subordinate legislation. At the outset, we may deal with one issue regarding the two different expressions 'collection charges' and 'service charges’. Going by the scheme of the Act at the first blush it would appear that the cost of process given in detail under the table below. Rule 4, along with interest alone is leviable in the process of revenue recovery. But, it has to be seen that Section 2(d) while defining cost of process provides for an inclusive definition, only indicating thereby that the cost in the process of recovery would take any other expense or charges incurred for the recovery. Though under proviso to Section 71, what is stated is only collection charges as far as institutions are concerned, except for the difference in the terminology, for all purposes and effects it is one and the same. Government machinery is used in the process of coercive steps taken for recovery. The institutions notified under Section 71 do not have to undergo the long drawn litigative process by incurring heavy expenditure. On a requisition made to the District Collector, the recovery machinery is set in motion and by various coercive steps the money is recovered from the defaulter. As a matter of fact, many of the institutions have attractive offers to the defaulters for settlement and by making use of such W.P.(C) No.19547/2015 **-:14:-** opportunities, the defaulters directly pay the amounts to the institutions. But, the fact remains that the Government has incurred heavy expenditure apart from the cost as provided under the table in using its machinery and making available the service of the officers. At no extra cost the institutions get their dues. It is, in that view of the matter only, the amendment was introduced by Act 31 of 2007 with effect from 27/02/1980 wherein, it has been explicitly made clear that such institutions who collect the amounts directly from the defaulters after the coercive steps for the revenue recovery shall be liable to pay 1% of the amounts so collected towards service charge on account of the recovery proceedings. The expression 'service charge' under Rule 5 is nothing but the collection charges as provided under the proviso to Section 71. 5. The tabled item viii under Rule 4 and Rule 5(1) have been challenged as ultra vires the Act. What is provided under Section 5 is only cost of process. But, as already noted by us, the cost would include other charges also. Such a view is also possible in terms of the wide power given to the Government under Section 86 to make rules to carry out all or any of the purposes of the Act. One of the purposes of the Act is to realize the collection charges from the defaulters. If so, the question is only whether the provision is unreasonable and discriminatory. When the defaulters remit the dues directly to the W.P.(C) No.19547/2015 ## **-:15:-** institutions on exhausting all the steps taken by the revenue recovery authorities, all that the institutions have to bear is only 1% of the amount collected from the defaulters. If that be so, the levy of 5% is certainly unreasonable when the amount is collected in the process of recovery by the revenue recovery authorities. After all such proceedings are initiated only in situations of distress. As observed by learned Single Judge of this Court in Baskaran v. Sub Registrar, 2005 (3) KLT 150. "Making the poor, poorer is not what is intended by the Revenue Recovery Act and the Rules thereunder”. Even otherwise, cost of involvement of the Government machinery cannot depend on the amounts collected in the process of coercive steps taken under the Revenue Recovery Act. Whether it is ten thousand rupees or ten crores of rupees, the process is the same. Therefore the levy of collection charges for utilizing the Government machinery, apart from the interest and cost as permitted under Rule 4, proportionate to the amount collected is nothing but an extortion and thus unreasonable and not permitted or warranted under the statute or the Constitution. The process of revenue recovery cannot be used as a source of revenue for the State. That is plainly beyond the legislative competence under the Constitution of India. Therefore, we hold that item viii under Rule 4 and Rule 5(1) are unreasonable and discriminatory and ultra vires the parent Act and the Constitution of W.P.(C) No.19547/2015 ## **-:16:-** India. The duty of the Court normally is to leave the matter at that Stage. But, that would certainly be against public interest. The Court has also the duty in such circumstances to construct, if situation so warrants. This is a case warranting the exercise of such a duty. Since we have already held that collection of 1% towards collection charges from institutions is permissible, we hold that in the process of recovery under the provisions of the Revenue Recovery Act by taking recourse to coercive steps, only 1% of the amount in addition to the cost of process and other charges as permitted under Rule 4, is permissible as collection charges. A reading of paragraph No.3 of the judgment in **Usha Mary (Supra)** indicates beyond doubt that this Court was of the view that even in cases where steps are taken for recovery of amounts due to the institutions notified under Section 71 of the Act, where the amounts are paid immediately after the issuance of notice under Section 7 and/or Section 34 of the Act, even the service charge of 1% could not be levied. In the facts and circumstances of the present case, immediately on notice for recovery being W.P.(C) No.19547/2015 ## **-:17:-** issued to the petitioner, the tax amount was paid by the petitioner. A further amount of Rs.36,79,791/- was paid by the petitioner as a condition for stay against recovery in an appeal filed by the petitioner challenging the order imposing penalty. Both these amounts were voluntarily paid by the petitioner and there is nothing on record to show that any steps were taken by the revenue recovery authorities to recover the amount from the petitioner apart from the issuance of notice. It is therefore clear that no collection charges are to be levied from the petitioner on the strength of the law laid by this Court in **Usha Mary (Supra).** The judgment of this Court in W.A.No .1107 of 2009 relates to recovery for an institution notified under Section 71 of the Act. As already noticed, steps taken for recovery of amounts payable to an institution notified under Section 71 of the Act stand on a different footing and even in **Usha Mary (Supra)** this Court justified the collection of a service charge of 1% when the defaulter pays the amount directly to the institution. Here, the W.P.(C) No.19547/2015 ## **-:18:-** recovery was for the collection of amounts due to the Government as tax and therefore, the decision of the Division Bench in W.A.No.1107 of 2009 also did not come to the aid of the respondents. The writ petition will therefore stand allowed, and it is declared that the petitioner is not liable to pay collection charges as demanded in Ext.P9. If any amount has been remitted by the petitioner towards collection charges, on the basis of the demand in Ext.P9, the said amount shall be refunded to the petitioner within a period of three months from the date of receipt of a certified copy of this judgment. ats **Sd/GOPINATH P. JUDGE** W.P.(C) No.19547/2015 ## **-:19:-** ## **`APPENDIX OF WP(C) 19547/2015`** ## **`PETITIONER’S EXHIBITS`** ``` EXHIBIT P1:TRUE COPY OF THE CHALAN RECEIPTS SHOWING E-PAYMENT TOWARDS THE 1ST RESPONDENT ``` - **`EXHIBIT P2: TRUE COPY OF THE PENALTY ORDER ISSUED BY THE 1ST RESPONDENT DATED 19/9/2013.`** ``` EXHIBIT P3: TRUE COPY OF THE DEMAND NOTICE ISSUED BY THE 2ND RESPONDENT DATED 29/10/2013. ``` - **`EXHIBIT P4: TRUE COPY OF THE JUDGMENT OF THIS HONOURABLE COURT IN WPC NO.32180/2013 DATED 24/12/2013.`** - **`EXHIBIT P5: TRUE COPY OF THE ORDER OF THE DEPUTY COMMISSIONER (APPEALS) II COMMERCIAL TAXES, ERNAKULAM DATED 25/2/2014.`** - **`EXHIBIT P6: TRUE COPY OF THE PROCEEDINGS OF THE DEPUTY COMMISSIONER, COMMERCIAL TAXES, ERNAKULAM DATED 19/6/2014.`** ``` EXHIBIT P7: TRUE COPY OF THE DEMAND DRAFT PURCHASED BY THE PETITIONER IN FAVOUR OF THE 2ND RESPONDENT DATED 25/6/2014. ``` ``` EXHIBIT P8: TRUE COPY OF THE JUDGMENT OF THIS HONOURABLE COURT IN WPC NO.16120/2014 DATED 26/6/2014. EXHIBIT P9: TRUE COPY OF THE DEMAND NOTICE ISSUED BY THE 2ND RESPONDENT DATED 17/4/2015. ```