Tax is not a debt and cannot be attached by civil courts before it is due; state statutes governing tax collection prevail over central laws in case of conflict.

Headnote:(A) Kerala General Sales Tax Act, 1963 - Section 49A - Kerala Value Added Tax Act - Section 79A - Civil Procedure Code, 1908 - Section 60, Order XXI Rule 46 and Rule 46A - Tax collected but not yet due - Attachment of tax paid prior to assessment is prohibited under state statutes - Tax is not assignable and thus not liable to attachment; compliance with garnishee orders amounts to valid discharge - Deposits made under garnishee orders are subjected to adjustment towards future tax liabilities. (Paras 32, 58, 61)

(B) Constitutional Law - Conflict between State and Central statutes - No irreconcilable conflict between the provisions of state acts and the Civil Procedure Code - State statutes governing tax collection prevail in case of ambiguity, under Articles 246 and 254. (Paras 34, 36)

Facts of the case:
The writ petitions involve the blend of tax assessment and execution procedures following the execution of land acquisition awards. The issues revolved around the propriety of tax attachment based on garnishee orders and the legal stance on tax as a non-assignable entity. (Paras 4-6)

Findings of Court:
The High Court ruled the tax collected but not yet due should not be attached. The court confirmed that taxes are not “debts” subject to attachment under CPC and directed adjustment of garnishee payments towards tax liabilities, ensuring interests are computed as per statutory provisions. (Paras 58-60)

Issues: The court examined whether tax collected is attachable and if there exists a conflict between provisions of state acts and the CPC regarding tax payments. (Paras 1-2)

Ratio Decidendi: The Court held that tax is inherently a sovereign right and cannot be considered a debt for attachment purposes. The statutes prohibiting attachment of tax before it is due were validated against the constitutional framework emphasizing the supremacy of state legislation in this regard. (Paras 26-31)

Result: Writ petitions allowed, with directions for the adjustment of past garnishee payments towards future tax liability, quashing the execution court's orders regarding tax attachment.

JUDGMENT

Sathish Ninan, J.

(i) Is Tax collected and kept by an assessee before it became due to Government in terms of Section 49A of the Kerala General Sales Tax Act, 1963 (KGST Act) and Section 79A of the Kerala Value Added Tax (KVAT Act) attachable by the Civil Court in execution of a decree?

(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 non- payment 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 of the 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” which could b

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2024 Supreme(Online)(Ker) 85463

Tax is not a debt and cannot be attached by civil courts before it is due; state statutes governing tax collection prevail over central laws in case of conflict.

Cases Referred (5)