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Assistant Commercial Tax Officer v. N.N Jariwala
Factual and Procedural Background
The appeal arises from a writ petition in which the learned Judge held that the compounding fee that could be collected from the 2nd respondent (a dealer in silk fabrics) was only Rs. 1,000 and not Rs. 2,000, and consequently the appellant (revenue authority) was directed to refund the balance. The factual sequence in the contested matter, as stated in the opinion, is:
- On 5-8-1987 the respondent's business premises were inspected by the Assistant Commercial Tax Officer (Intelligence).
- The inspecting officer found stock of silk and art silk fabrics and noted absence of regular books of account and supporting purchase vouchers; alleged suppression of purchases and turnover was calculated and a tax liability was assessed.
- A notice dated 07-11-1987 was issued under Section 29(2)(d) of the Karnataka Sales Tax Act (KST Act), 1957, proposing departmental compounding under Section 31 and asking the respondent to pay tax and express willingness to compound within seven days.
- Thereafter the offence was compounded for Rs. 2,000. The respondent challenged the legality of the Rs. 2,000 levy by presenting a writ petition, contending that under Section 31(b) the maximum compounding fee applicable was Rs. 1,000.
- The learned Judge allowed the writ petition in favour of the respondent. The appellant filed this writ appeal against that judgment.
Legal Issues Presented
- Whether, on the facts and the statutory provisions cited, the appropriate maximum compounding fee in the respondent's case was Rs. 1,000 (under Section 31(b) of the KST Act) or whether a higher compounding fee (such as Rs. 2,000) could validly be levied.
- Whether the respondent was estopped from challenging the compounding fee by having voluntarily agreed to departmental compounding (i.e., whether acquiescence/prevention of challenge applied where the respondent had agreed to and paid the compounding fee to avoid prosecution).
Arguments of the Parties
Appellant's Arguments
- The view of the learned Judge that the maximum compounding fee that could be collected in this case was Rs. 1,000 was erroneous.
- Alternatively, even if the compounding fee might have been excessive, the respondent, having voluntarily agreed to compound the offence and thereby avoided prosecution, was estopped from presenting the writ petition to challenge the levy.
Respondent's Arguments
- The respondent contended in the writ petition that the case fell under Section 31(b) of the KST Act and therefore the maximum compounding fee permissible by law was Rs. 1,000; the compounding at Rs. 2,000 was contrary to law.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The court's reasoning proceeded principally by statutory interpretation of Sections 29 and 31 of the KST Act as they applied to the facts shown by the departmental notice and the compounding that followed.
-
Identification of relevant statutory provisions:
- Section 29 enumerates various offences (clauses (a) to (g) of Section 29(1) and clauses (a) to (d) of Section 29(2)) and prescribes punishments and fines.
- Section 31 provides for composition of offences and distinguishes two situations:
- Clause (a) of Section 31 permits compounding with a sum not exceeding Rs. 1,000 or double the amount of tax/amount unpaid or evaded where the offence is under clause (d) of Section 29(1) or clause (c) of Section 29(2).
- Clause (b) of Section 31 provides that in other cases the compounding sum shall not exceed Rs. 1,000.
-
Application to the facts:
- The notice issued to the respondent was specifically under Section 29(2)(d) of the Act (i.e., the departmental charge related to wilful contravention under Section 29(2)(d)).
- Because the notice was under Section 29(2)(d), the case was not one of the particular categories specified in Section 31(a) (those under Section 29(1)(d) or Section 29(2)(c)) where compounding could be in an amount up to double the tax evaded. Thus Section 31(b) applied, limiting the compounding fee to a maximum of Rs. 1,000.
- The court further noted that to attract clauses 29(1)(d) or 29(2)(c) (the broader compounding limit of Section 31(a)), an assessment order would ordinarily need to have been passed and a failure to pay or evasion of payment established; these elements were not present here on the facts as framed by the departmental notice under Section 29(2)(d).
- Consequently, the learned Judge's conclusion that only Rs. 1,000 could lawfully be levied as compounding fee in this case was accepted by the court.
-
On the estoppel/acquiescence argument:
- The court recognized that if the compounding fee demanded and accepted was within the maximum prescribed by Section 31, there would be force in the appellant's contention that a dealer who agreed to compounding to avoid prosecution should not thereafter challenge the fee as excessive.
- However, the court distinguished the situation where the authority had demanded an amount beyond the statutory maximum (either through misconstruction of the Act or otherwise) and the dealer, through ignorance or to avoid prosecution, paid that excess amount. In such circumstances the dealer retains the right to challenge the illegality of an unauthorized demand.
- Applying this principle to the present facts, because the compounding fee collected was double the statutory maximum (Rs. 2,000 collected where Rs. 1,000 was the statutory ceiling), the respondent was entitled to challenge the excess collection notwithstanding that he had agreed to compound the offence and paid the sum to avoid prosecution.
Holding and Implications
Holding: The Writ Appeal is dismissed.
Implications:
- The appellate court agreed with the learned Judge's conclusion that, on the facts and the statutory scheme, Section 31(b) of the KST Act limited the maximum compounding fee in this case to Rs. 1,000; therefore collection of Rs. 2,000 was contrary to the statutory limit.
- Because the appeal is dismissed, the judgment of the learned Judge (which had allowed the writ petition on the ground that only Rs. 1,000 could be levied and that the appellant should refund the balance) remains in force.
- The court clarified the legal position on estoppel: a dealer who pays a compounding fee that is within the statute's maximum is in a different position from one who pays an amount demanded beyond the statutory maximum; in the latter case the dealer may challenge the illegality of the excess demand notwithstanding prior agreement to compound.
- No new precedent beyond the court's statutory interpretation is stated in the opinion; the ruling serves to uphold the learned Judge's application of Sections 29 and 31 to the facts of this case and to permit challenge where the authority demands more than the maximum prescribed by law.
This summary is based exclusively on the contents of the provided opinion. Sections not addressed in the opinion (such as cited precedents) were noted as absent.
The Judgment of the Court was delivered by
Rama Jois, A.C.J:— This Writ Appeal is presented by the appellant against the Judgment of the learned Judge allowing the Writ Petition holding that the compounding fee that could be collected from the 2nd respondent was only Rs. 1,000/- and not Rs. 2,000/- and therefore the appellant should refund the balance of the amount.
2. The brief facts of the case are these: The respondent is carrying on the business of purchasing and selling silk fabrics. His business premises was inspected by the Assistant Commercial Tax Officer, Intelligence on 5-8-1987. After verifying the stock of art silk and pure silk fabrics the Officer was of the view that the respondent had committed an offence punishable under Section 29(1)(a) of the Karnataka Sales Tax Act (for short ‘the Act’) and a notice to that effect was issued on 26-9-1987 (Annexure-B). Subsequently having regard to the objections raised by the respondent, a notice dated 7-11-1987 under SECTION 29(2)(d) OF THE Act was issued. It reads:
“No. ACTO/INT/LR/AB/INS/4/87-88
Office of the
Asst. Commercial Tax Officer,
(Intelligence) LR, South Zone,
Bangalore, Dt. 07-11-1987.
REVISED SHOW CAUSE NOTICE UNDER SECTION 29(2)(d) OF THE KST ACT 1957
1. Take notice that your place of business was inspected by the undersigned on 05-08-1987 along with other colleague officers. At the time of inspection, it was noticed that silk fabrics physical stock was lying in your business premises. You have not produced regular books of accounts for verification.
2. Pursuant to the verification with assistance of Sri Narendra Kumar, husband of the Proprietric of the said business concern, it is noticed that the stock book, Ledger, and other regular books of accounts i.e, Day book, ledger, purchase vouchers, invoices, sales bills etc. not maintained and produced for verification. In the absence of the regular book of accounts, the purchases of silk fabrics and art silk fabrics stock valued at Rs. 1,48,800-00 and Rs. 12,000-00 respectively, held in the business premises without relevant purchase invoices/vouchers. So the suppression of the purchases are totallying to a sum of Rs. 1,60,800-00.
3. The sales turnover of silk fabrics and art silk fabrics arrived by adding gross profit at 10% on purchases i.e, Rs. 14,800-00 and Rs. 1,200-00 respectively. So the suppression of sales turnover of silk fabrics and art silk fabrics to a sum of Rs. 1,63,800-00 and Rs. 13,200-00 respectively. The total suppression of sales of silk fabrics and art silk fabrics is arrived at Rs. 1,76,800-00. The tax liability on sale of silk fabrics @ 4% is at Rs. 6,547-20.
In addition to the above suppression the following irregularities were noticed, which amounts to contravention of Section 26 of the KST Act, 1957 read with Rule 26 of the KST Rules, 1957.
a) Books of accounts not maintained.
As explained above, you have wilfully acts in contravention of the provisions of the KST Act, 1957 is punishable under SECTION 29(2)(d) OF THE KST Act 1957. So, I propose to file a charge sheet in the jurisdictional Judicial Magistrate for the above offence committed by you. However, before doing so, you are hereby given an opportunity to appear before the undersigned and compound the offence departmentally under Section 31 of the KST Act, 1957. If you so desirous, you are hereby required to pay the taxes a sum of Rs. 6,547-00 and express your willingness in writing to compound the offence departmentally within seven days from the date of receipt of this notice. Failing which action as proposed will be initiated without further notice.
Sd/- A. BALLAPPA
ASST. COMMERCIAL TAX OFFICER
(INT) - LR, SOZ., Bangalore.
Thereafter the offence was compounded for a sum of Rs. 2,000/-. Questioning the legality of the said levy, the respondent presented the Writ Petition. The contention of the respondent in the Writ Petition was, that as the case comes under Section 31(b) of the Act, the maximum compounding fee that could have been levied was Rs. 1,000/- and therefore the levy of compounding fee at Rs. 2,000/- was contrary to law. The said contention of the respondent was accepted by the learned Judge and the Writ Petition was allowed. Aggrieved by the said Order, the appellant has presented this Appeal.
3. Sri H.L Dattu, learned Counsel for the appellant urged the following two contentions:
(1) The view taken by the learned Judge that the maximum compounding fee that could be collected in a case like this was Rs. 1,000/- was erroneous;
(2) In any event, as the respondent was not entitled to prefer an appeal, after having voluntarily agreed for the compounding of the offence, he was estopped from presenting the Writ Petition also.
4. In order to appreciate the contentions, it is necessary to set out the provisions of Sections 29 and 31 of the KST Act:
“29. Offences and Penalties: (1) Any person who
(a) xxxx fails to submit a return as required by the provisions of this Act, or the Rules made thereunder; or
(b) xxxxx
(bb) dishonestly objects to or fails to comply with the terms of a notice issued to him under sub-section (1) of Section 14; or
(c) [omitted by Act 7/1966]
(d) fails to pay within the time allowed any tax assessed on him or any penalty levied on him under this Act; or
(e) fails to keep true and complete accounts;
(f) being a dealer (or a miller whether he is a dealer or not) fails to comply with a notice issued under sub-section (1) of Section 28;
(g) fails to submit a statement as required by sub-section (1) of Section 12B;
(h) xxxx
Shall on conviction by a Magistrate, not below the rank of a Second Class Magistrate, (be liable to a fine which shall not be less than two hundred and fifty rupees but which may extend to five hundred rupees).
(2) Any person who-
(a) wilfully submits an untrue return, or not being already an assessee under this Act, fails to submit a return as required by the provisions of this Act or the Rules made thereunder; or
(aa) carries on business as a dealer without furnishing the security demanded under sub-section (4) of Section 10A; or
(aaa) wilfully submits an untrue statement under sub-section (1) of Section 12B;
(aaaa) being a person obliged to register himself under Section 10 does not get himself registered; or
(b) prevents or obstructs inspection, entry search or seizure by an officer empowered under this Act; or
(bb) prevents or obstructs inspection of any vehicle or boat or goods transported otherwise or seizure of goods by an officer-in-charge of a check post or barrier or any officer empowered under this Act; or
[(bbb) tampers with any seal put under clause (iii) of sub-section (2) of Section 28; or]
[(c) fraudulently evades the payment of any tax or other amount payable by him under this Act, or]
(cc) collects any amount by way of tax or purporting to be by way of tax in contravention of sub-section (1) or sub-section (2) of Section 18; or
(ccc) collects any amount by way of [turnover tax] or purporting to be by way of [turnover tax] in contravention of sub-section (3) of Section 18; or
(d) wilfully acts in contravention of any of the provisions of this Act or the Rules made thereunder,
shall on conviction, in addition to the recovery of any tax or other amount that may be due from him, be punishable with simple imprisonment
[which may extend to twelve months or with a fine which shall not be less than one thousand rupees but which may extend to five thousand rupees] or with both; and when the offence is a continuing one, with a daily fine not exceeding one hundred rupees during the period of the continuance of the offence.”
Section 31:
31. Composition of offences:
The prescribed authority may accept from any person who has committed or is reasonably suspected of having committed an offence punishable under this Act, by way of composition of such offence-
[(a) where the offence committed is under clause (d) of sub-section (1) of Section 29 or clause (c) of sub-section (2) of Section 29, in addition to the tax or amount not paid or evaded to be paid, a sum of money not exceeding one thousand rupees or double the amount of tax or amount so remaining unpaid or evaded to be paid whichever is greater, and]
(b) in other cases, a sum of money not exceeding one thousand rupees.”
The various types of offences that might be committed by the individuals are set out in Clauses (a) to (g) of Section 29(1) and also in clauses (a) to (d) of Section 29(2). Section 31 of the Act provides for composition of offences. Clause (a) thereof provides that where the offence committed is under clause (d) of sub-section (1) of Section 29 or clause (c) of sub-section (2) of Section 29, in addition to the tax or amount not paid or evaded to be paid, a sum of money not exceeding one thousand rupees or double the amount of tax or amount so remaining unpaid or evaded to be paid whichever is greater, could constitute the basis for compounding the offence. According to clause (b) in the case of all other offences the maximum amount of compounding fee that could be collected is Rs. 1,000/-.
5. If in the present case the offence committed by the respondent was either under Section 29(1)(d) or 29(2)(c), the contention urged by the learned Government Advocate would have been unexceptionable. In such cases the compounding fee might exceed Rs. 1,000/- and it may be any amount depending upon the amount of tax evaded. In other words the amount of compounding fee could be double the amount of tax evaded. But in respect of other offences the Legislature has fixed the maximum compounding fee of Rs. 1,000/-. It should also be pointed out that in order to attract clauses 29(1)(d) and 29(2)(c), an assessment order should have been passed against the dealer concerned and if inspite of passing the assessment order he had failed to pay the amount fraudulently or otherwise or had evaded the payment of tax as the case may be. In such a case the maximum amount of Rs. 1,000/- fixed under Section 31(b) would not be applicable. As stated earlier, the notice issued to the respondent by the appellant was specifically under SECTION 29(2)(d) OF THE Act. Therefore, this case clearly falls under Section 31(b) of the Act and therefore the maximum compounding fee that could be collected from the respondent was Rs. 1,000/-. Therefore, we respectfully agree with the view of the learned Judge on this aspect of the matter.
6. The next question for consideration is, whether the respondent was estopped from presenting the Writ Petition on the ground of acquiescence. If the amount of compounding fee demanded and accepted by the respondent was within the maximum prescribed under Section 31 of the Act, there would have been considerable force in the contention of the appellant that the dealer concerned having agreed for compounding of the offences on payment of the amount within the maximum limit prescribed by law and having avoided prosecution, cannot subsequently turn round and challenge that the compounding fee collected was excessive. But in our opinion that consideration will not apply to a case where either on account of misconstruction of the provisions of the Act or for any other reason the competent authority had demanded an amount which is beyond the maximum prescribed by the Act and on account of ignorance or for any other reason the dealer concerned had agreed to pay and/or paid the said amount to avoid prosecution. In such a case the dealer concerned would have the right to contend that the amount demanded was not authorised by law and therefore just because the dealer had accepted to pay the amount and have the offence compounded, he cannot be precluded from challenging the action of the authorities on the ground that the collection of compounding fee beyond the maximum prescribed under the Act was illegal. That is exactly the position in this case, in that the maximum amount that could have been collected as compounding fee was Rs. 1,000/- and as double that amount has been collected, the respondent had the right to challenge the legality of the levy.
7. In the result, we make the following order:
The Writ Appeal is dismissed.
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