By TIOL News Service

AHMEDABAD, JULY 09, 2018: THE ISSUE AT HAND BEFORE THE BENCH IS - Whether an amount of tax dues paid would first be applied towards recovery of interest & penalty arising from the principal amount, where the interest & penalty are greater than the principal amount of tax. YES IS THE ANSWER.

However, the Bench also held that in such circumstances, an assessee could not seek that an amount paid under a relief scheme only be adjusted against the principal amount of tax dues payable. It further held that such amount could not be treated as being paid in excess & no refund of such amount could be claimed.

Facts of the case

THE assessee company is engaged in business of Aluminium extruded products. During the relevant AY, the assessee owed tax dues of about Rs 250 lakhs. In order to avail concessions under a scheme for sick units declared to be so by the Board for Industrial & Financial Reconstruction (BIFR), the assessee applied for registration as a sick unit. Pending the application and under verbal instructions from the sales tax department, the assessee started paying the due amount in installments & paid about Rs 79.79 lakhs. It was under the bona fide belief that such payment would protect it from coercive measures and that such amount paid would be set-off against the final amount determined under the scheme.

Subsequently, the assessee was granted registration as a sick unit. The Sales Tax Department and the Industries Department proceeded to calculate the amount payable by the assessee and were in the process of setting off the amount already paid by the assessee against the amount payable under the scheme. Meanwhile however, the scheme was discontinued & was replaced by a new scheme offering reliefs & concessions to sick units. Thereby, the assessee filed a fresh application seeking relief for sick industrial units. In the fresh application, the assessee mentioned that it owed Rs 250 lakhs and that its had paid Rs 79 lakhs and that it was now liable to pay the balance amount of Rs 170 lakhs. Thereafter, the assessee was granted fresh registration as sick unit and that the resolution being prepared under the earlier scheme was cancelled.

Subsequently, so as to avail the benefit of remission of penalty, penal interest, interest & the principal amount, the assessee was called upon to pay about Rs 289 lakhs. The assessee paid the entire amount and then sought for refund of the Rs 79 lakhs already paid. However, such request was denied despite several requests. Hence the present writ.

In writ, the High Court held that,

++ it is required to be noted that whatever the amount was deposited by the assessee, in the present case for the period 16.08.2006 to 25.02.2008 was paid by the assessee before even the assessee was registered as a sick unit under the GBIFR as per the earlier Scheme of 12.05.2004. The said Scheme came to be withdrawn and thereafter, the assessee applied afresh for getting the benefit under the subsequent Scheme dated 15.07.2010. Therefore, the outstanding amount as on 31.03.2010 was required to be considered;

++ considered the definition of "Outstanding Dues" as per the Resolution dated 15.07.2010. It is the case on behalf of the assessee that the amount of Rs.79.79 lakhs paid by it was required to be adjusted against the principal dues. However, such claims shall be contrary to the provisions of Section 47(4B) of the Gujarat Sales Tax Act, 1969, which provides that where a dealer is liable to pay interest under sub-section (4A) and he makes payment of an amount which is less than the aggregate of the amount of tax, penalty and interest, the amount so paid shall be first applied towards the amount of interest, thereafter the balance, if any, towards the amount of penalty and thereafter the balance, if any, towards the amount of tax. In the present case, admittedly, the amount of penalty and interest was higher than the payment made, therefore, the same was first required to be adjusted towards the penalty and interest. After adjusting the same towards penalty and interest liability as per the "outstanding dues" defined in the Government Resolution, the principal amount was required to be considered which as such was Rs.250 lakhs. It is required to be noted that even as per the final order, the amount of interest is considered after deducting Rs.79.79 lakhs. Therefore, the submission on behalf of the assessee that the amount of Rs.79.79 lakhs paid earlier is required to be adjusted towards the principal amount cannot be accepted as the same would be contrary to the Scheme of the Gujarat Sales Tax Act, more particularly, Section 47(4B) of the said Act. Under the circumstances, while passing the final order under the scheme, the authority rightly considered the principal amount due at Rs.250 lakhs. It is required to be noted that as such, the petitioner has already paid the said amount and the question is only with respect to the refund of the said amount. Considering the aforesaid facts and circumstances of the case, the amount of Rs.79.79 lakhs paid for the period between 16.08.2006 to 25.02.2008 also cannot be said to be payment in pipeline. It is the case on behalf of the assessee that as per the oral instructions given by the Sales Tax Officer, Bharuch, the assessee made the payment. This has no substance. Even otherwise, the outstanding dues were required to be considered as on 31.03.2010 which was Rs.250 lakhs as observed hereinabove. The earlier payment of Rs.79.79 lakhs was already earlier adjusted towards the amount of interest as per the relevant provisions of the Sales Tax Act, more particularly, Section 47(4B) of the Act. Under the circumstances, it cannot be said that the assessee made the payment of Rs.79.79 lakhs in excess for which he shall be entitled to the refund. Hence the present writ fails.

(See 2018-TIOL-1281-HC-AHM-CT)