Section 18-A is a penal provision that requires the establishment of a guilty mind for its application, and it aims to prevent the misuse of tax provisions.

K. SHIVASHANKAR BHAT, J.

( 1 ) THE State has come up with these revision petitions in S. T. R. P. Nos. 11 to 14 of 1988. The matter pertains to the interpretation of section 18-A of the Karnataka Sales Tax Act, 1957 (for short "the Act" ). The assessee manufactures and sells copper sulphate. Under the Second schedule to the Act, there are two entries which compete with each other to assess copper sulphate. Entry No. 79 refers to "chemicals of all kinds" while entry No. 117 refers to "insecticides and pesticides". The rate of tax on the sale of chemicals of all kinds is quite higher than the rate of tax applicable to the sale of insecticides and pesticides.

( 2 ) THE assessee throughout has been contending that the copper sulphate sold by the assessee falls within entry No. 117 while the Revenue has been contending that the subject was covered by entry No. 79. In the year 1963 there was a circular issued by the Commissioner under the Act stating that the copper sulphate was covered by entry No. 79. The assessee protested and has been agitating with the Government insisting that the copper sulphate should be taxed only under entry No. 117.

( 3 ) HOWEVER, in the meanwhile the assessee continued to collect tax at the rate applicable to entry no. 79, and in all its monthly returns the said collection was shown and appropriate payments were made to the State Government. There is no dispute that the assessee has paid the tax under entry No. 79. Since the assessee could not persuade the State Government to bring the subject-matter under entry No. 117, the assessee filed writ petitions in the year 1976 seeking the quashing of the circular issued by the Commissioner. The said writ petitions (W. P. Nos. 3163 and 3322 of 1976) were disposed of on September 29, 1983. This Court quashed the aforesaid circular issued by the Commissioner to the extent that the said circular included copper sulphate as a heavy chemical. It was declared that copper sulphate was a subject falling within entry No. 117 as "insecticides". The authorities under the Act were required to regulate the levy and collection of sales tax on this basis. Thereafter the Revenue assessed the assessee under entry No. 117. The balance of amount with the State had to be refunded to the assessee. At this stage,the assessing authority thought that the assessee should have made provisions for refunding the excess collection of tax to its customers, and assessee having collected the tax at a higher rate treating the goods as falling under entry No. 79, section 18 of the Act stood contravened. Consequently, proceedings were initiated under section 18-A on the ground that the assessee contravened the provisions of section 18.

( 4 ) THE assessee contended that the collection of the tax under entry No. 79 was by abundant caution, since there was a circular issued by the Commissioner under the Act which was binding on all the authorities and the collection was not by way of any misuse or contravention of the provisions of the Act. The assessing authority insisted that the assessee should undertake to refund the excess collections to the customers from whom the excess tax has been collected.

( 5 ) THE assessee went up in appeal to the Deputy Conunissioner, who also dismissed the appeal on the ground that the assessee had not effected any refund of the tax collected from the various customers from whom excess amounts had been collected and that the assessee was not prepared to file an undertaking that the amount of tax collected would be refunded to the customers concerned. The assessee approached the Appellate Tribunal. The Appellate Tribunal accepted the appeals filed by the assessee. The Appellate Tribunal opined that in view of the stand taken by the Revenue that tax is payable at 8 per cent, the assessee could not have taken the risk of collecting the tax at a lower rate and accordingly collection of tax at the higher rate was by way of abundant caution. Consequently, the levy of

Click Here to Read the rest of this document