Sales Tax; Gandhi Sons Vs. Assistant Commissioner [Kerala High Court, 24-02-1994]

Kerala General Sales Tax Act, 1963 – Refund of excess amount – the assessing authority is bound to adjust the amount due to the assessee and recover only the balance, if any.

1994 (95) STC 205 : 1994 (2) KLT 898 : ILR 1994 (3) Ker. 39

IN THE HIGH COURT OF KERALA AT ERNAKULAM

T.L. Viswanatha Iyer, J.

Gandhi Sons vs. Assistant Commissioner And Anr.

24 February, 1994

O.P. No. 5877 of 1992

J U D G M E N T

1. While completing the assessment, exhibit P1, under the Kerala General Sales Tax Act, 1963 (“the KGST Act”, for easy reference), for the assessment year 1976-77, the petitioner was found entitled to get refund of an amount of Rs. 1,0.4,423.91 as the excess amount of sales tax paid by it during the year. At the same time, the petitioner was held liable to pay an amount of Rs. 8,799.11 by way of surcharge. Petitioner got further relief in the appeal it filed against the order exhibit P1 which was disposed of by the Deputy Commissioner by his order exhibit P2 dated June 6, 1989. According to the petitioner, if the order exhibit P2 is implemented, the amount of refund due will exceed Rs. 1,14,000, The Revenue has filed appeal before the Sales Tax Appellate Tribunal against the order exhibit P2 with a delay of 870 days. That is pending consideration.

2. The assessment for the next year 1977-78 was completed by the proceedings exhibit P3 by which the petitioner was called upon to pay an amount of Rs. 62,644.09 as balance of tax due and Rs. 5,011.56 by way of surcharge. Petitioner challenged the order unsuccessfully in appeal. Pending the said appeal, petitioner paid 50 per cent of the demand as per the order exhibit P3, as a condition of stay of the balance. After the disposal of the appeal, first respondent issued notice to the petitioner calling upon it to make payment of the balance amount due as per the order of assessment exhibit P3. A copy of the notice is exhibit P6 and it mentions the amount due as Rs. 67,455.65, without crediting the payment of 50 per cent of the dues which the petitioner made as a condition of stay pending the appeal against exhibit P3. It is the receipt of this notice exhibit P6, with threat of coercive proceedings that necessitate the petitioner filing this writ petition for relief.

3. Petitioner points out that it had been repeatedly requesting the first respondent-assessing authority to adjust the refund due to it as per exhibits P1 and P2 towards the balance amount due from it for the year 1977-78 under the assessment exhibit P3. Petitioner states that the first respondent has not chosen to consider this legitimate request, and has, on the other hand, threatened coercive proceedings when large amounts due to the petitioner are remaining unappropriated with him. This, it is said, is illegal and oppressive. I am in agreement with this contention. The first respondent was bound to adjust the refund due as per the orders exhibits P1 and P2 towards the amount due under the assessment, exhibit P3, particularly when the petitioner had made request for the same, as seen from the letter exhibit P5.

4. When the order of assessment, exhibit P1, was passed on September 11, 1984, the petitioner became entitled to refund of the amount of tax mentioned therein. Even adjusting the amount of surcharge due thereunder, the petitioner was entitled to get refund of Rs. 95,624.80. This amount became refundable eo instanti the order exhibit P1 was passed on September 11, 1984. Even if the order exhibit P2 had not been passed, and no further relief given to the petitioner, the position would have been that the amount due by way of refund as per exhibit P1 was sufficient to cover the entire amount of tax demanded under the proceedings exhibit P3. When amount was due to him by way of refund, and it was available unappropriated with the first respondent, the petitioner as the person who owed tax to the State was entitled to direct his creditor, the first respondent to appropriate it towards the demand made for 1977-78. The principles of Sections 59and 60 of the Indian Contract Act, 1872, are not anathema to the provisions of the KGST Act as was held by this Court in Vijaya Oil Mills v. State of Kerala [1980] 45 STC 463 ; 1979 KLT 250. The Supreme Court had in fact recognised the compelling equity of such adjustments and appropriations in the decision in N.C. Mukherjee and Co. v. Union of India (1967) 1 SCWR 246 ; [1968] 68 ITR 500 (SC) rendered by a Constitution Bench. The appellant-firm had been assessed to pay large amounts by way of excess profits tax for four assessment years. Coercive proceedings were initiated for recovery of these amounts, when it was noted by the income-tax authorities themselves that considerable sums were due to the partners of the firm by way of refund. But the exact amount of refund had not been crystallised, when the recovery proceedings for the excess profits tax were initiated, because of the complicated nature of the cases. The Supreme Court observed :

“We think that justice demands that before the Certificate Officer executes the demand against the appellant-firm, amounts refundable to it or its partners should be ascertained by the concerned Income-tax Officer so that the demand may be executed only for the balance. We, therefore, direct the concerned Income-tax Officer to complete his enquiry in regard to the amounts refundable to the appellant-firm or its partners under the Income-tax Act within three months from the receipt of the order by him. The Certificate Officer will thereafter execute the demand for the balance of the amount, if any, due from the appellant-firm.”

The Supreme Court has thus laid down the procedure to be followed in cases where there are amounts due to, and from, the State. The assessing authority is bound to adjust the amount due to the assessee and recover only the balance, if any. So far as this case is concerned, there is no complication at all, for the reason that the order exhibit P1 has fixed the amount due to the petitioner, which only got enhanced as a result of the appellate order exhibit P2. Therefore and even apart from the further relief granted by exhibit P2, the first respondent was obliged to adjust the refund towards the balance amount due under the order of assessment exhibit P3, particularly when the petitioner had made a request for such adjustment. It was not open to the first respondent to delay the refund, and at the same time make demand for amounts due from the petitioner under the order, exhibit P3, as if the amounts were not adjustable against each other. The notice, exhibit P6, is unsustainable and contrary to law. The reason stated by the Government Pleader for the non-adjustment that an appeal had been filed against the appellate order, exhibit P2, and that was pending, is no reason at all, because the petitioner was entitled to get Rs. 95,624.80 by way of refund under the order of assessment exhibit P1 itself, which was more than sufficient to cover the entire demand under the order exhibit P3. The proceedings for recovery initiated by the first respondent are therefore liable to be quashed.

The original petition is therefore allowed and the proceedings initiated by exhibit P6 are quashed. Since the recovery proceedings were uncalled for in the circumstances of this case, and oppressive, I direct the respondents to pay the costs of the petitioner, including advocate’s fee of Rs. 500.

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