Karnataka High Court Upholds Adjustment Of Excess Excise Duty Payment Towards Dues Of Another Firm

The Karnataka High Court has upheld the adjustment of an excess excise duty payment made towards the dues of one firm against the outstanding liability of another firm under the State's Karasamadhana-IV Scheme.

A Division Bench comprising Justice Lalitha Kanneganti and Justice K.S. Hemalekha dismissed the State's appeal against the order of the Single Judge directing the authorities to adjust the excess amount of ₹43.23 lakh paid towards the liability of Nagalingaswami Trading Company (NTC) against the dues of M/s Torgal Group (TG).

The respondent, Manoji, was a partner of NTC and had obtained arrack-vending rights for certain years. Excise dues were outstanding in respect of both NTC and TG.

The State had introduced the Karasamadhana-IV Scheme to facilitate recovery of excise arrears by granting relief from interest and penal interest upon payment of the principal amount within the prescribed period.

The respondent paid the entire dues of NTC within the stipulated period. An excess amount of about ₹43.23 lakh remained with the State. He subsequently requested that the excess amount be adjusted towards the dues of TG and also paid the remaining amount required to settle TG's principal liability.

The State rejected the request, taking the view that the excess payment made in respect of one firm could not be adjusted against the liability of another firm.

The respondent challenged the decision before the High Court. The Single Judge allowed his plea and directed the authorities to treat the excess payment made towards NTC as payment towards TG under the Scheme.

The State challenged this order before the Division Bench, arguing that NTC and TG were separate entities and that there was no provision under the Karnataka Excise Act or the Scheme permitting such adjustment.

The Bench, however, found no reason to interfere with the Single Judge's order. The Court noted that the respondent had already paid the entire excise duty due from NTC and the excess amount was lying with the State.

The Court observed that the main object of the Karasamadhana-IV Scheme was to ensure speedy recovery of the principal excise dues while providing relief from interest and penal interest. Once the principal amount had been recovered, the benefit of the Scheme could not be denied merely because the excess payment had originally been made in connection with another firm.

The Bench held that it was immaterial who made the payment, as the primary objective of the Scheme was recovery of the principal amount.

"We hold that it is immaterial as to who makes the payment, since the Scheme is intended to recover the principal amount. Once the principal amount was recovered, the only ratio that remained for consideration was the grant of a wavier in respect of the interest and penal interest. Consequently, the State cannot now be heard to contend that the respondent was disentitled to the benefit of the Scheme merely because the excess payment had originally been made in connection with another firm...", the Court said.

It therefore concluded that the State ought to have adjusted the excess amount towards the dues of TG.

The writ appeal filed by the State was accordingly dismissed.

For Appellant: Rashmi Patel, HCGP

For Respondent: Shreevatsa Hegde and Abhilash Hanamannavar, Advocates