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IN THE HIGH COURT OF KERALA AT ERNAKULAM
SATHISH NINAN, JOHNSON JOHN, JJ.
BHARAT PETROLEUM CORPORATION LTD. – Appellant
Versus
STATE OF KERALA – Respondent
W.A. No. 388 of 2014, W.P. (C) Nos. 21626, 25268, 29967 of 2013, 9348 of 2014
Decided On : 11-09-2024
Tax - Tax Collection - KGST Act, KVAT Act, CPC Sections 49A, 79A, 60 - The court held that tax collected but not due is not attachable under CPC, affirming the provisions of the KGST and KVAT Acts that prohibit such attachment.
Fact of the Case:
The case involves the assessment of tax against an assessee following execution court orders that attached tax collected but not yet due to the government. The assessee complied with garnishee orders, leading to disputes over tax liability and attachment legality.
Finding of the Court:
The court found that tax is not a debt under CPC and thus not attachable. It ruled that the provisions of the KGST and KVAT Acts prohibiting attachment of tax collected but not due are valid and must be upheld.
Issues: The main issues were whether tax collected but not due is attachable by civil courts and if there is a conflict between state tax laws and the CPC regarding attachment.
Ratio Decidendi: The court concluded that tax is not a debt and cannot be attached under CPC, affirming the validity of state provisions that prohibit such attachment.
Result: The court quashed the execution court's attachment orders and directed the adjustment of garnishee payments towards tax liabilities.
Tax collected but not yet due to the government, such as amounts held in a treasury account by an assessee under state sales tax laws (e.g., KGST Act Section 49A or KVAT Act Section 79A), cannot be attached by a civil court in execution of a decree. (!) (!) (!) (!) (!) (!) (!) (!)
This follows from the ruling that such tax is not a "debt" under CPC Section 60, as it lacks assignability and arises from sovereign taxing power rather than contract, making it exempt from attachment under Order XXI Rule 46/46A. (!) (!) (!) (!) (!) (!) (!)
State tax laws prohibiting attachment prevail, with no repugnancy to CPC, as confirmed by constitutional analysis under Articles 246/254. (!) (!) (!) (!) (!)
For treasury accounts specifically: If the account holds tax collections not yet due (pre-assessment), attachment orders are invalid and must be quashed; amounts deposited pursuant to invalid garnishee orders are adjustable toward tax liability on equitable grounds under Article 226. (!) (!) (!) (!) (!) (!) (!)
JUDGMENT :
SATHISH NINAN, J.
1.......
(ii) Is there any conflict/inconsistency between Section 49A of the KGST Act and Section 79A of the KVAT Act with, Section 60 read with Order XXI Rule 46 and 46A of the Code of Civil Procedure, 1908(CPC)? In case of conflict, which is to prevail?
(iii) In the circumstances of the case, is the assessee who deposited tax before an execution court pursuant to garnishee order under Order XXI Rule 46 and Rule 46A of CPC, entitled to discharge of pro-rata tax payable?
2. The above are the broad questions that arise in these proceedings.
3. The assessment of tax in relation to the erstwhile Cochin Refinery, and the Bharat Petroleum Corporation Ltd. (BPCL) into which it was merged and amalgamated in the year 2006 (hereinafter referred to as “the assessee”) is the subject matter involved.
4. In execution of various land acquisition awards against the State, execution courts issued order of attachment/prohibitory orders and garnishee orders against the assessee. The orders related to the tax collected by the assessee (KGST, KVAT and Central Sales Tax) but which had not become due to the Government. In compliance with the garnishee orders, the assessee deposited such amounts before the execution court. However, thereafter the State issued assessment orders followed by penalty orders, alleging nonpayment of the tax due from the assessee.
5. The assessee claims that, in terms of Order XXI Rule 46F CPC, compliance with the garnishee orders amounts to valid discharge of the tax liability as against the State, to such extent.
6. The State would on the other hand contend that, Sections 49A and 79A of the KGST Act and KVAT Act respectively, prohibited attachment of the tax collected and kept with the assessee before it became due to the Government. Hence the assessee could not have made payment of such amounts before the execution court. Such deposits if any made are in contravention of the KGST Act and KVAT Act and hence cannot be reckoned/recognised in the assessment orders and in reckoning the tax paid, is the contention.
7. We have heard the learned Senior Counsel Sri.K.I.Mayankutty Mather and learned counsel Sri. Raja Kannan on behalf of the assessee, Sri. Mohammed Rafiq, the learned Special Government Pleader (Taxes) on behalf of the State, and Sri. P.R.Ajith Kumar on behalf of the Central Government.
8. According to the learned Senior Counsel for the assessee, a debt is attachable under CPC. Sections 49A and 79A of the KGST Act and KVAT Act respectively, prohibits such attachment. Thus the said provisions in the State Acts namely, the KGST and KVAT are in direct conflict with the Central Act viz. CPC. In case of such conflict, in terms of Articles 246 and 254 of the Constitution of India, the Central Act has to prevail. Hence, Sections 49A and 79A of the KGST Act and KVAT Act respectively, are liable to be declared as unconstitutional, is the argument.
9. Alternatively it is contended that, even if the said provisions in the State Acts are held to be valid, the assessee had made payments into the execution court in compliance with the garnishee orders issued by the court. The payments were not gratuitous. Hence they are liable to be adjusted towards the tax payable by the assessee, and the assessee is to be given a valid discharge to such extent. The learned Senior Counsel relied on Section 70 of the Indian Contract Act in support of the argument. It is further contended that, even if Section 70 of the Indian Contract Act as such is held to be inapplicable, on the facts of these cases, equity warrants direction for such appropriation, it is urged.
10. The learned Senior Government Pleader would on the other hand contend that, Tax is not a “debt” whi
Tax collected but not due is not a debt and cannot be attached under civil procedure, affirming the prohibitory provisions of state tax laws.
The Income Tax Department cannot claim properties auctioned under the KGST Act for tax dues, as the KGST Act establishes a first charge on such properties.
Provisional attachment orders under Section 83 of the CGST Act cannot extend beyond one year as per the explicit language of the statute, requiring strict interpretation.
Provisional attachments under Section 83 of the CGST/SGST Acts cannot extend beyond one year, and fresh orders cannot be issued after this period.
Provisional attachments under Section 83 of the CGST/SGST Acts cannot extend beyond one year, as specified in Section 83(2), and any fresh orders issued after this period are invalid.
Recovery of Income Tax dues of Borrower - Charge of secured creditor would have priority over Government dues under Income Tax Act - No provision in Income Tax Act which provides for any paramountcy ....
Provisional attachment orders under Section 83 of the CGST/KGST Act automatically cease to have effect after one year, with no scope for renewal or reissuance by tax authorities.
Section 80 of the OGST Act does not permit the grant of instalments for self-assessed tax liability shown in any return.
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