Prima Beverages (P) Ltd. v. Assistant Commissioner-II, Special Circle-I, Department of Commercial Taxes, Ernakulam; Inspecting Assistant Commissioner, Commercial Taxes, Ernakulam

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON** ## **WEDNESDAY, THE 1ST DAY OF AUGUST 2012/10TH SRAVANA 1934** ## **WP(C).No. 10198 of 2009 (T)** **---------------------------------------** **PETITIONER:** ## **-------------------** **PRIMA BEVERAGES (P) LTD., PRIMA HOUSE, SOUTH KALAMASSERY, ERNAKULAM DISTRICT, REPRESENTED BY ITS MANAGING DIRECTOR, MRS.SWATHI GUPTA.** **BY ADV. SRI.R.MURALIDHARAN (AROOR).** **RESPONDENTS:** **-----------------------** **1. THE ASSISTANT COMMISSIONER-II, SPECIAL CIRCLE-I, DEPARTMENT OF COMMERCIAL TAXES, ERNAKULAM.** **2. THE INSPECTING ASSISTANT COMMISSIONER, COMMERCIAL TAXES, ERNAKULAM.** **BY GOVERNMENT PLEADER SRI. SHAIJ RAJ. T.K.** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 29-06-2012, THE COURT ON 01/08/2012 DELIVERED THE FOLLOWING:** ## **W.P.(C).NO.10198/2009-T:** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **EXT.P.1: COPY OF THE ASSESSMENT ORDER PASSED BY THE R.1, FOR THE YEAR 2002-03 DTD. 01/07/2006.** **EXT.P.2: COPY OF THE ASSESSMENT ORDER PASSED BY THE R.1. DTD. 27/11/2006.** **EXT.P.3: COPY OF THE STAY ORDER PASSED BY THE 1ST APPELLATE AUTHORITY DTD. 02/02/2007 & DTD. 12/02/2007.** **EXT.P.4: COPY OF THE POSTING NOTICE ISSUED BY THE APPELLATE AUTHORITY FOR HEARING OF THE APPEAL, DTD. 29/08/08. EXT.P.5: COPY OF THE ORDER PASSED BY THE R.1. UNDER SEC. 19, DTD. 28/01/2009.** ## **RESPONDENTS' EXHIBITS:** **EXT.R1: COPY OF THE OBJECTION.** **EXT.R2: COPY OF THE RETURN FILED BY THE PETITIONER FOR THE YEAR 2002-2003.** ## **//TRUE COPY//** ## **P.A. TO JUDGE.** **Prv.** ## **P.R.RAMACHANDRA MENON, J.** - - - - - - - - - - - - - - - - - - - - - ## **W.P.(c) No. 10198 OF 2009** - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 1[st] day of August, 2012 ## **JUDGMENT** Ext.P5 order passed by the first respondent re-opening Ext.P1 assessment and seeking to satisfy interest due in respect of the relevant period, which was omitted to be assessed/incorporated at the time of Ext.P1 assessment, is under challenge. 2. The petitioner, a Small Scale Industrial Unit, engaged in the manufacturing and sale of packaged drinking water/beverages is a registered dealer, both under the KGST Act and CST Act, on the rolls of the first respondent. In respect of the assessment year 2002-03, the petitioner filed return (in respect of the various items dealt with), claiming exemption for the turn over of the 'packaged drinking water' under the notification therein- SRO 1729/1993, which provides for exemption, as specified. As a matter of fact, the taxability of drinking water was always a subject matter of dispute, as it was firstly introduced in the market under the name and style as “Mineral Water”. WPC.No.10198/09 2 Though the commodity actually consisted only 'purified portable water', with no minerals added to the same, the tax liability in respect of 'mineral water' under Entry No. 141 of the First Schedule is at 20% . If the product does not constitute 'mineral water', it could only be under the residual entry of 177, attracting tax liability @ 8%. In any view of the matter, the petitioner claimed total exemption under the notification- SRO 1729/1993 and filed the return accordingly. In the meanwhile, the Apex Court considered the issue and held that, the dealers are not eligible for exemption under the cover of SRO 1729/1993, since the production of mineral water/packaged drinking water did not amount to any manufacturing activity, vide the decision reported in _**M/s.Teejan Beverages Ltd. v. State of Kerala**_ ( 2003(11) KTR 443( Ker). By virtue of the law declared as above, the claim for exemption made by the petitioner was not liable to be entertained and the petitioner was liable to satisfy the tax in respect of the said turn over as well. But then, the question is, at what rate ?. 3. The first respondent/assessing authority reckoned the turn over declared by the petitioner in the return and assessed the tax in WPC.No.10198/09 3 respect of packaged drinking water at the rate of 20%, after rejecting the objection to have it assessed @ 8%. The assessment was finalised accordingly, as borne by Ext.P1 order dated 01/07/2006, fixing the total tax liability @ 20% of the declared turn over of Rs.6,47,680/-. The said order was taken up in appeal before the concerned authority disputing the rate of tax, more so, when another officer in place of the first respondent, in respect of the subsequent assessment year 2003-04, had accepted the case of the petitioner/assessee, as to the actual rate of tax applicable and assessment had been finalised imposing the tax liability @ 8%, as borne by Ext.P2 order dated 27/11/2006. Considering the case projected by the petitioner, the Appellate Authority granted interim stay vide Ext.P3 order, subject to satisfaction of 1/3[rd] of the balance dues. It is stated that the appeal is still pending finalisation, though Ext.P4 notice was given, as to the final hearing scheduled on 19/09/2008. 4. In the meanwhile, it came to the notice of the first respondent that interest payable in respect of the tax liability was never included, while passing Ext.P1 assessment order. In the said WPC.No.10198/09 4 circumstances, it was thought to have a re-assessment to the said extent and notice dated 8/12/2008 was issued under Section 19. The petitioner/assessee filed objection stating that, the assessment for the year 2002-03 was pending consideration in appeal ( STA 2859/2006) before the Deputy Commissioner ( Appeals),Ernakulam. Observing that the only objection was as to the pendency of the appeal against the assessment and the extent of liability of tax fixed, the first respondent, though did not choose to modify the extent as given in Ext.P1, in respect of the tax liability, added 'interest' on the tax due for the period from 05/03-12/06, showing a sum of Rs. 5,59,498/- and issued demand notice, which in turn is under challenge. 5. The respondents have filed a counter affidavit seeking to sustain Ext.P5, pointing out that 'interest' demanded is only in respect of the tax worked out, applying the rate as 8% (as contended by the petitioner) and that too, on the declared turn over, as given in the revised return filed by the petitioner. This being the position, it is contended that, there is absolutely no merit or bonafides in the contentions raised, more so, when there is a liability upon the petitioner WPC.No.10198/09 5 to satisfy interest under Section 23(2) and that, by virtue of Rule 31, it has necessarily to be satisfied by the petitioner, as mentioned in the Explanation, making it clear that such liability to satisfy interest on the tax due, is irrespective of the fact that any demand is received or not. It is also pointed out that, the course pursued by the first respondent is correct and sustainable, notwithstanding the fact that, the appeal against Ext.P1 assessment order was pending consideration before the Appellate Authority, in view of the clear mandate under Sub Section 3 of Section 19. 6. The learned counsel for the petitioner submits that, Ext.P5 order has been admittedly issued under Section 19, which, however cannot be attracted to deal with the situation, as Section 19 can be attracted only under 'three' different circumstances i.e. (1) where for any reason, the whole or any part of the turn of business of a dealer has escaped assessment to tax in any year or; (2) has been under assessed at a rate lower than the rate at which it is assessable or; (3) any deduction has been made wrongly therefrom-----, subject to satisfaction of the requirement as specified . None of the circumstances WPC.No.10198/09 6 will come into play, with regard to the liability sought to be mulcted towards interest vide Ext.P5, submits the learned counsel. 7. The learned Government Pleader appearing for the respondents submits that, the liability to satisfy the tax is not disputed. The challenge before the appellate authority being only with regard to the rate of tax, the position the liability to satisfy 'interest' is automatic, by virtue of Section 23(3). In other words, the liability to satisfy interest, is by virtue of the statutory prescription. There is no discretion vested with the assessing authority or anybody else, to have it varied. 8. The learned counsel for the petitioner, however, submits that, the rate of tax is having a direct bearing, as the tax liability fixed vide Ext.P1 is by reckoning the rate at 20%, in place of 8%, which is still to be finalised, as pending in appeal. This being the position, the interest payable, with reference to the actual quantum of tax payable, is also liable to vary and thus, seeks for interference. 9. The undisputed question of fact is that, the petitioner initially claimed for exemption under notification S.R.No.No.1729/1993, for which he is not entitled, in view of the law WPC.No.10198/09 7 declared by the Apex Court on the point, with regard to which, there is no dispute. The only dispute is with regard to the rate of tax, as the petitioner contends that the tax can be only @ 8%, treating the packaged drinking water as residual entry under entry No.177 of the First Schedule and not at 20% under entry No.144, as adopted by the first respondent. In other words, there is no dispute at all for the petitioner, as to the tax liability atleast to an extent of 8% . This stand of the petitioner is clearly discernible from Ext.R1 statement of objections in response to the pre-assessment notice under Section 17 (3). It is also evident that, the petitioner has submitted Ext.R2 revised return, declaring the turn over in respect of the packaged drinking water, with regard to which also, there is no dispute. This being the position, the crucial question is whether there is any liability for the petitioner to satisfy 'interest', atleast to the admitted extent of tax payable and if so, whether Ext.P5 order is sustainable to this extent . 10. Coming to the liability to satisfy interest as mentioned herein before, it is rather automatic by virtue of the specific stipulations under Section 23(3) of the KGST Act. The petitioner has no dispute as WPC.No.10198/09 8 to the tax payable at the rate of 8% and as to the turn over declared vide Ext.R2 revised return. The respondents has specifically stated in paragraph 3 of the counter affidavit that, the 'interest' worked out as Rs. 5,59,498/- for the period from 05/03-12/06, as given in Ext.P5, is in respect of the tax realisable at the conceded rate of 8% of the declared - turn over of Rs. 95,02,348/ and AST @ 15%. The tax liability as worked out on the said declared turn over ( 8% ST and 15% AST) comes to a total of Rs. 8,74,216/-, which attracts interest as provided under Section 23(3) to an extent of Rs.5,59,498/-. In other words, though the tax liability fixed in Ext.P1 assessment order is more than Rs. 22 lakhs, the interest now claimed as per Ext.P5 is only on the tax worked out, applying the rate as 8% and nothing more. This being the position, the quantum of interest payable does not warrant any interference. More so, in view of the statutory liability to satisfy interest . There is no case for the petitioner that the petitioner had satisfied the tax earlier. In view of the admitted pleading that he has sought for exemption under notification - S.R.O.No.1729/1993, which however, has rightly been declined in view of the law declared by the WPC.No.10198/09 9 Apex Court, there is no legally acceptable case for the petitioner, in view of the statutory prescription that, the petitioner is not liable to pay any interest and the non-satisfaction of the tax was on the basis of the wrongful exemption claimed in respect of the tax liability, which ought to have been satisfied then and there. As such, this Court holds that the petitioner is liable to satisfy 'interest' at the rates as prescribed under the Statute. 11. The next question is whether Ext.P5 order is proper, with reference to Section 19. With regard to the scope of Section 19, the power under Section 19 can be invoked only in respect of the three specific circumstances mentioned therein. Though there is some force in the submission made from the part of the petitioner, this by itself can't vitiate the proceedings, as the 'wrong quoting' of a provision of law, by itself will not make the order null and void, if the same is otherwise sustainable. There is no dispute that the tax liability as mentioned in Ext.P1 has not been touched by the first respondent, but for dealing with the case of 'interest', while passing Ext.P5. More so, in view of the pendency of the appeal in respect of the extent of tax WPC.No.10198/09 10 payable, since the liability to satisfy interest on the admitted tax is statutory. It was always open for the petitioner to satisfy interest portion as well, when there was no dispute in respect of the taxable extent of the turn over as given in the revised return. That part, Rule 31 of the KGST Rules also clearly stipulates, by way of Explanation, that the liability to satisfy interest under Section 23(3) of the Act is automatic and does not depend upon whether any notice of demand has been received. As such, the interest could have been demanded by issuance of a notice to the petitioner. Even otherwise, nothing prevented the first respondent from having invoked the power under Section 43, if it were to be treated as an 'error apparent on the face of the record'. Whether the interest was included in Ext.P1 order or not, is a matter discernible from the records, for which, no detailed fact adjudication or such other exercise is necessary. That apart, Ext.P1 order was passed on 1/7/2006 and Ext.P5 order was passed on 28/01/2009 i.e. well within three years, which is the parametere prescribed under Section 43. It is also evident that Ext.P5 order was passed, after issuing notice and giving an opportunity of hearing, to WPC.No.10198/09 11 which, the only objection raised by the petitioner was that appeal against Ext.P1 order in respect of the 'rate of tax' was pending. This Court finds that, the reference made to Section 19 in Ext.P5 order is not enough to have it declared as null and void, in so far as the extent of interest calculated and demanded is only in respect of the tax payable on the declared turn over as per the revised return, adopting the rate of tax as 8% and nothing more. In the said circumstances, interference is declined and the writ petition is dismissed as devoid of any merits. ## **P.R.RAMACHANDRA MENON JUDGE** sv. WPC.No.10198/09 12