STATE OF KARNATAKA Vs. ZUARI INDUSTRIES LTD.

JUDGEMENT

(1.) The Revenue has preferred this revision challenging the order passed by the Karnataka Appellate Tribunal, which has set aside the order passed by the appellate authority as well as the assessing officer. The net effect of it is, there is no liability on the part of the assessee to pay the amount under section 18AA of the Karnataka Sales Tax Act, as per the forfeiture order. Hence, the revision has been filed by the State.

(2.) The respondent is the manufacturer of various brands and varieties of fertilizers. The respondent is a registered dealer under the provisions of the Karnataka Sales Tax Act, 1957, (for short, hereinafter referred to as "the Act"). For the assessment years 1994-95 and 1995-96, the respondent collected tax as per form No. 3 and form No. 4 in a sum of Rs. 2,58,48,158 and Rs. 4,01,76,658, respectively. Subsequently, they filed a revised return of turnover in form No. 4 for both the years, as a sequel to the decision of the Allahabad High Court in the case of Rashtriya Chemicals and Fertilisers Limited v. State of U.P.,1996 101 STC 487. In the said judgment it was held that subsidy given by the Government is an exempted value and cannot be part of the turnover. The element of tax was reworked as being collected for both the assessment years in question by excluding the value of the subsidy of Rs. 2,44,63,505 for the assessment year 1994-95 and Rs. 3,80,02,898 for the assessment year 1995-96. Accordingly, the respondent claimed the difference of tax as shown in original form No. 4 and revised form No. 4 at Rs. 13,84,653 and Rs. 21,73,760 for the assessment years 1994-95 and 1995-96.

(3.) The assessee had collected taxes on the subsidy amount by including the said taxes as part of turnover as per form 3 and original annual return. The taxes so collected being Karnataka sales tax and surcharge were collected from dealers/distributors by separately charging in the sale invoices. The dealers/distributors were aware about payment of taxes by them even on subsidy amount. The price on chemical fertilizers which has been collected from the farmers by the dealers/distributors had included the taxes collected on subsidy and therefore the price inclusive of taxes on subsidy was paid by the farmers. Such being the case, the assessee was not permitted to retain such amounts as it is not their amount which is amount of taxes collected from the farmers in the chain of sales and therefore it is public revenue. Instead of declaring and paying over the same to the Department, the assessee preferred to retain the above amount by shifting the taxes on subsidy amount as collected to the basic price of the chemical fertilizers as per the revised annual return. Thus in effect they illegally appropriated the taxes collected on the subsidy amount. Therefore, a show-cause notice was issued under section 18AA of the Act. The assessee filed objections. They contended that the assessing officer has considered the aforesaid contentions and passed an order and therefore the question of reconsidering the same would not arise. They contended that they have not collected any taxes on the subsidy amount. Therefore the notice issued for forfeiture of the amount which they had not received, would not arise. In fact, they also filed returns showing that they had not collected taxes on subsidy. They also gave examples in writing to show how no tax was collected on the subsidy which is extracted in the order of the assessing officer. On consideration of the same, the assessing officer found that the assessee had designed their claim in such a way that it gave an impression that they have not committed any discrepancy. Though maximum retail price is fixed in case of certain chemical fertilizers, it cannot be said that whatever the amounts they have worked out within that price was not violative of provisions of section 18 of the Act. The maximum retail price including the tax component had been passed on to the consumers, namely, farmers. In this process the assessee had realised taxes on subsidy from the farmers which could not have been retained by them and cannot also be added up to the basic price of the product. In the result, they were in clear violation of section 18(1)(b) of the KST Act, 1957. Accepting this, due to changed position of law, they could have either remitted or should not have claimed the adjustment of taxes as per revised annual return. Therefore the objections were overruled by the assessing officer and the proposal for forfeiture of tax collected on subsidy was upheld and an order forfeiting the aforesaid amount for the said two years was passed.