Prima Industries Limited v. Assistant Commissioner (Assessment), Special Circle, Department of Commercial Taxes, Palakkad and State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE** ## **WEDNESDAY, THE 29TH DAY OF JUNE 2016/8TH ASHADHA, 1938** ## **WP(C).No. 22181 of 2009 (P)** **----------------------------** ## **PETITIONER :** **----------------------** **M/S. PRIMA INDUSTRIES LIMITED, PRIMA HOUSE, SOUTH KALAMASSERY, KOCHI-33, REPRESENTED BY ITS MANAGING DIRECTOR SANJAY GUPTA.** ## **BY ADVS.SMT.S.K.DEVI SRI.SHANMUGHAM D. JAYAN** **RESPONDENT(S) :** - **---------------------------1. THE ASSISTANT COMMISSIONER (ASSESSMENT), SPECIAL CIRCLE, DEPARTMENT OF COMMERCIAL TAXES, PALAKKAD.** **2. STATE OF KERALA, REPRESENTED BY ITS FINANCE SECRETARY, SECRETARIAT, THIRUVANANTHAPURAM.** **R1 & R2 BY GOVT. PLEADER SRI. BOBBY JOHN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 20-06-2016, ALONG WITH WP(C). NO.37461/2009, THE COURT ON 29-06-2016 DELIVERED THE FOLLOWING:** **Mn** **...2/-** **WP(C).No. 22181 of 2009 (P)** ## **APPENDIX** ## **PETITIONER'S EXHIBITS :** **EXT.P1 : TRUE COPY OF ASSESSMENT AND DEMAND NOTICE DTD. 29-7-09. EXT.P2 TRUE COPY OF NOTICE DTD. 3-7-2009. EXT.P3 TRUE COPY OF FINANCE BILL 2007. EXT.P4 TRUE COPY OF FINANCE ACT 2007. EXT.P5 TRUE COPY OF REPLY FILED BY PETITIONER.** ## **RESPONDENT'S EXHIBITS : NIL** **//TRUE COPY//** **P.S. TO JUDGE** **Mn** ## **A.M. SHAFFIQUE, J.** ============= W.P. (C) Nos. 22181 & 37461 of 2009 ======================== Dated this, the 29[th] day of June, 2016 ## **J U D G M E N T** Since common questions arise for consideration in these writ petitions, these are decided together. These writ petitions are filed challenging the vires of Section 1(2)(d) of Finance Act, 2007 giving effect to the provisions which were not in the Finance Bill, 2007 from a date prior to the promulgation of the Finance Act, 2007 and also seeking for a writ of certiorari to quash the assessment order and demand notice passed pursuant to the same. 2. The short facts involved in WP(C) No. 22181/2009 would show that the petitioner, an assessee on the rolls of the 1[st] respondent, is engaged in the business of processing of coconut oil and allied products. Petitioner was served with notice under Section 25(1) of the KVAT Act, 2003, proposing to reject the returns filed for the months of May, June, July, August and September, 2007. In the notice, it was stated that their purchases were not eligible for input tax claim from May, 2007 to W.P(C) Nos.22181 & 37461/09 -:2:- September, 2007 which represents purchases of solvent extracted coconut oil , copra cake etc,. In the notice, it is stated that as per Kerala Finance Act, 2007, coconut oil and copra cake were exempted from tax w.e.f. 1/5/2007 and therefore, the input tax claimed on purchases for the period from 1/5/2007 are to be disallowed. Pursuant to the said notice, Ext.P2 order had been passed by which the input tax claim has been denied. According to the petitioners, before financial year 2007-08, coconut oil was liable to tax at the rate of 4% as per Entry 8 of Schedule III of the Act. The exemption was given as per Finance Act of 2007 by incorporation of Entry 12B in Schedule 1 to the Act. Simultaneously, Entry 8 in Schedule III was deleted. The Finance Act was promulgated through Gazette dated 28/7/2007. However, the amendment was given effect from 1[st] of May, 2007. According to the petitioners, since the exemption was not in the Finance Bill and was available only under the Finance Act, there was no means for the petitioners to know about such a provision from 1[st] of May, 2007. Thus, they collected tax from their purchasers and the same was incorporated in the periodical returns for the said period. Though a representation was given, W.P(C) Nos.22181 & 37461/09 -:3:- no action was taken in the matter and hence this writ petition is filed. 3. Learned counsel for the petitioner submitted that during the pendency of the writ petitions, a new provision had been incorporated w.e.f. 01/04/2010 in KVAT Act as Section 11 (3A), which reads as under; _“_ _**3A** . Notwithstanding anything contained in this Act, the tax collected by registered dealers under this Act at four percent on the sales of coconut oil, copra and coconut oil cake for the return periods of May, 2007 and June, 2007 shall be deemed to have been validly collected.”_ 4. It is therefore contended that substantial grievance of the petitioner had already been taken care of. However, it is submitted that the benefit should be extended upto the date of promulgation in the Gazette i.e., on 28/7/2007. Learned counsel submits that there is no rationale in limiting the application of Section 11(3A) till May and June alone, whereas it has to be extended upto 28/7/2007 and the assessment has to be recomputed on that basis. 5. Learned counsel also placed reliance on the judgment of the Supreme Court in _**Corporation Bank v. Saraswati**_ ## W.P(C) Nos.22181 & 37461/09 ## -:4:- ## _**Abharansala**_ [2009 (19) VST 84 (SC)], wherein it is held by the Apex Court as under; _“Furthermore the notification having been given a retrospective effect must be construed on the touchstone of the purpose and object it sought to achieve. The principle of purposive construction should be applied in a case of this nature to find out the object of the Act. When a statute cannot be considered in such a manner which would defeat its object, the Legislature is presumed to be aware of the consequences flowing therefrom. The statute should be considered in such a manner so as to hold that it serves to seek a reasonable result. The statute would not be considered in such a manner so as to encourage defaulters and discourage those who abide by the law._ _Furthermore, the statute, it is trite, should be read in the manner so as to do justice to the parties. If it is to be held, without there being any statutory provision that those who have deposited the amount in time would be put in a disadvantageous position and those who were defaulters would be better placed, the same would give rise to an absurdity. Construction of the statute which leads to confusion must be avoided.”_ 6. Yet another judgment relied upon is _**Vikram Cement**_ _**and another v. State of Madhya Pradesh and Others**_ [(2015) 80 VST 1 (SC)], wherein the Apex Court relying upon W.P(C) Nos.22181 & 37461/09 -:5:- ## _**Corporation Bank**_ (supra) held as under; _“It is possible, as was sought to be argued by the learned counsel for the State, that while adding this Explanation the Government had kept in mind the principle of unjust enrichment. Presumably because of this reason, the High Court also referred to the judgment in the case of Indian Oil Corporation. However, on such a presumption alone, there cannot be any justification for adding the Explanation of the nature mentioned above. In order to determine as to whether a particular dealer is in fact entitled to refund or not, the Government can go into the issue of unjust enrichment while considering his application for refund. That would depend on the facts of each case. It cannot be presumed that the burden was positively passed on to the buyers by these dealers and, therefore, they are not entitled to refund.”_ 7. Counter affidavit has been filed by the 1[st] respondent contending that immediately on promulgation of Finance Act, 2007, the petitioner ought to have issued debit notes on the sellers and credit note on purchasers. It is stated that in terms of Section 72(1) of the KVAT Act, no forfeiture will be ordered if assessing authority is satisfied that the tax illegally collected has been returned to the person from whom it was collected. 8. The learned Government Pleader also supported the ## W.P(C) Nos.22181 & 37461/09 ## -:6:- stand taken in the matter. However it is contended that the Government in its wisdom has sought for amending the statutory provision by declaring the collection of tax at 4% for the period May, 2007 and June 2007, as validly collected and therefore substantial grievance of the petitioner had already been met. 9. As rightly contended by the learned counsel for the petitioner that when a statute is made retrospective, appropriate provisions ought to have been made to take care of situations which had arisen during the relevant time. It is not in dispute that the effective date of coming into force of the statute was on 28/7/2007. It was not part of the Finance Bill and therefore the dealers had no occasion to know about the said situation until 28/7/2007. It is apparent from the provision incorporated under Section 11(3A) that the Government had taken into consideration the aforesaid fact situation and had made concessions. In fact, the concession ought to have been extended upto 28[th] July, 2007. There is no reason why the amendment is not given effect to until 28/7/2007. As held by the Apex Court in _**Corporation Bank**_ (supra), the statute cannot be considered in a manner which would defeat its object. There is an obligation cast upon the W.P(C) Nos.22181 & 37461/09 -:7:- dealers to collect tax as per the statutory scheme until there is an amendment. When an amendment is bought into force on a later date with retrospective operation, provisions ought to have been made in regard to the tax already collected. In fact, as rightly contended by the learned counsel for the petitioner, if tax is not collected as per the statute, it entails penalty procedure. In the above circumstances, there is justification on the part of the petitioners to contend that they were eligible for input tax credit upto 28/7/2007. In the result, these writ petitions are allowed as under; i) Ext.P1 in both cases are set aside. (ii) The assessing authority is directed to take fresh assessment by providing input tax credit to the petitioners for the period May 2007, June, 2007 and upto 28[th] July 2007. (iii) The assessments may be completed with notice to the petitioners within a period of three months from the date of receipt of a copy of this judgment. Sd/- ## **A.M. SHAFFIQUE, JUDGE** Rp //True Copy// P.S to Judge