Visakhapatnam Stevedores Association v. Union of India
[Citation -2014-LL-0915-44]

Citation 2014-LL-0915-44
Appellant Name Visakhapatnam Stevedores Association
Respondent Name Union of India
Court HIGH COURT OF HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH
Relevant Act Income-tax
Date of Order 15/09/2014
Judgment View Judgment
Keyword Tags accrued interest • central excise • port trust
Bot Summary: JUDGMENT The judgment of the court was delivered by L. Narasimha Reddy J.-This writ petition is filed with a prayer to declare the action of the Visakhapatnam Port Trust, the second respondent herein, in not refunding the amount that has been collected in the nature of fringe benefit tax between 2005 and 2009 from the members of the petitioner-association despite repeated demands, as illegal, arbitrary and contrary to the provisions of the Income-tax Act, 1961, apart from being unconstitutional. The petitioner contends that the board and the second respondent herein were registered under section 12 of the Act and, accordingly, they stood exempted from the obligation to pay tax and still the fringe benefit tax was collected. Taking into account the fact that the benefits so paid are many a time phenomenal in quantum, Parliament introduced the provision for levy of fringe benefit tax in the form of addition to section 115W to section 115WL in Chapter XII-H of the Act through the Finance Act, 2005. In case the Income-tax Department made any demand against the second respondent for payment of fringe benefit tax and that, in turn, collected the corresponding amount from the members of the petitionerassociation, there would not have been any serious objection. May be as a precautionary measure, the second respondent and its predecessor intended to collect the amount, representing the fringe benefit tax, from the members of the petitioner- association, so that the same can be paid, in the event of there being any demand from the Income-tax Department. The tax appeal is only in relation to service tax and not about the income- tax. If any doubt is entertained in this behalf as to the identity, it is open to the second respondent to seek necessary information or clarification from the petitioner, and If the second respondent paid any service tax on the amount collected by it towards service tax, it need not refund the same.


JUDGMENT judgment of court was delivered by L. Narasimha Reddy J.-This writ petition is filed with prayer to declare action of Visakhapatnam Port Trust, second respondent herein, in not refunding amount that has been collected in nature of fringe benefit tax (FBT) between 2005 and 2009 from members of petitioner-association despite repeated demands, as illegal, arbitrary and contrary to provisions of Income-tax Act, 1961 (for short "the Act"), apart from being unconstitutional. Consequential direction for refund of amount of Rs. 7,40,69,450 with interest at rate of 14.75 per cent. per annum is sought. facts, in brief, are that at Visakhapatnam Port, several ships arrive for loading and unloading purposes. Visakhapatnam Dock Labour Board (for short "the Board") was constituted with view to regulate work force needed for that purpose. board would supply required manpower for loading and unloading of ships. To act as bridge between ship owners on one hand, and board, on other hand, institution of stevedores is introduced. board grants licences to concerned individuals or agencies to act as stevedores, and on being so recognised, stevedores are supplied work force by board. Over period, board was merged with Visakhapatnam Port Trust, second respondent herein. Parliament amended Act providing for levy of tax on fringe benefits paid to employees. liability to pay tax, on this account, however, was placed upon employer. board felt that it is under obligation to pay fringe benefit tax in respect of employees/workers on its rolls. Since wages for workers are paid by stevedores, it was resolved to collect fringe benefit tax for concerned employees, from respective stevedores. tax is on fringe benefits paid to each employee. However, formula was evolved to collect Re. 1 for each metric tonne of material handled by stevedore for onward payment of fringe benefit tax, to Income-tax Department. Between years 2005 and 2009, sum of Rs. 7 crores was collected towards fringe benefit tax from stevedores, i.e., members of petitioner-association. petitioner contends that board and second respondent herein were registered under section 12 of Act and, accordingly, they stood exempted from obligation to pay tax and still fringe benefit tax was collected. They submit that whatever may have been justification for collecting amount, when there was some uncertainty as to liability of second respondent to pay fringe benefit tax, at least when Tribunal decided finally in year 2010 that second respondent is not liable to pay fringe benefit tax, amount ought to have been refunded, more so, when it was not remitted to Income-tax Department. detailed counter-affidavit is filed by second respondent. fact that fringe benefit tax at rate of Re. 1 per metric tonne of handled material at port was collected, is not disputed. It is, however, stated that amount had to be collected, to be on safe side, and amount so collected was kept in separate account, so that, it can be paid in event of any determination or fastening of liability. plea is raised to effect that association cannot make demand since amount was collected from various stevedores. It is also urged that respective stevedores have passed on liability of fringe benefit tax paid by them, to their ultimate customers, be it ship owners or goods transporters, and that they are not liable to refund amount. Difficulty is also expressed about identification of members from whom it was collected. Heard Sri S. R. Ashok, learned senior counsel for petitioner and Sri A. V. Krishna Koundinya, learned senior counsel for respondents. It is not uncommon that employees in establishments, particularly those, which are large in size, provide for payment of fringe benefits to their employees. Taking into account fact that benefits so paid are many time phenomenal in quantum, Parliament introduced provision for levy of fringe benefit tax in form of addition to section 115W to section 115WL in Chapter XII-H of Act through Finance Act, 2005. It is obligation of employer to pay fringe benefit tax. In introductory part itself, it has been mentioned that board, which has since merged with second respondent, would have several employees on its rolls, and they, in turn, are allotted to stevedore contractors for purpose of loading or unloading ships. Though wages for allotted employees/workers are paid by concerned stevedore contractors, second respondent happens to be actual employer. Therefore, obligation, if any, to pay fringe benefit tax, rests with second respondent. In case Income-tax Department made any demand against second respondent for payment of fringe benefit tax and that, in turn, collected corresponding amount from members of petitionerassociation, there would not have been any serious objection. reason is that agency, which is under obligation to pay wages and fringe benefits, is equally, under obligation to pay tax also. It is matter of record, that second respondent got itself registered under section 12 of Act and thereby became exempted from payment of tax. Dispute in relation to some other aspect, arising under income-tax, was said to be pending. May be as precautionary measure, second respondent and its predecessor intended to collect amount, representing fringe benefit tax, from members of petitioner- association, so that same can be paid, in event of there being any demand from Income-tax Department. Instead of taking into account, fringe benefits to be paid to employees/workers and determining proportionate fringe benefit tax thereon, board of management of second respondent evolved formula, in this behalf, through its resolution dated July 28, 2005. It reads: "The board resolved to adopt minutes of meeting No. 2 held on June 4, 2005, and circular resolution No. 42 of 2005 dated June 23/ 30, 2005. Shri K. V. Krishna Kumar stated that with regard to board resolution No. 40 of 2005, for purpose of clarity, it was decided to collect fringe benefit tax from easily measurable point without double accounting. Hence, board resolved to collect special levy towards fringe benefit tax liability of VDLB from employers of registered scheme on stevedoring tonnage at Re. 1 per metric tonne with effect from August 1, 2005." Accordingly, amounts were being collected from concerned members of petitioner-association, and by 2012, it aggregated to about Rs. 8 crores. fact, however, remains that neither there was any demand by Income-tax Department against second respondent for payment of fringe benefit tax nor in fact any amount was paid on that account. amount recovered from members of petitioner-association was deposited in separate account, from time to time, and it is also earning interest. petitioner has been making demand for refund of amount of Rs. 8,30,03,737. Even in counter-affidavit, second respondent did not plead any justification, worth its name, for withholding amount. only plea raised was with regard to levy of service tax of Rs. 46,91,187 by Central Excise Department. appeal in relation thereto is said to be pending with CESTAT Southern Bench. inclination on part of second respondent to refund amount is also signified in paragraph 12 of counter-affidavit. It reads: "It submit in reply to paragraph 19 of affidavit of petitioner that fringe benefit tax amount was shown as'liabilities' on balance-sheet and amount was kept in separate account known as fringe benefit tax till finalisation of case. In this regard it is further submitted that while furnishing clarification to CESTAT authorities, it is stated under protest, that fringe benefit tax is collected from employers and credited under liability with condition that as consequence of income-tax appeal, if it is not liable to fringe benefit tax, amount so collected will be refunded to firms." tax appeal is only in relation to service tax and not about income- tax. Once there is no demand, much less payment of fringe benefit tax by second respondent to Income-tax Department, there does not exist any justification to withhold amount. Across Bar, it is argued that refund of amount may result in undue enrichment of members of petitioner-association, and sometimes, it may even be difficult to identify persons, from whom it is collected. As regards first contention, it has to be kept in mind that collection of amount by second respondent was not in exercise of any sovereign powers. It is only when Government, in its sovereign power, collects amount, and there is likelihood of benefit, not reaching end customer, that principle of undue enrichment will come into play. underlying principle is that if trader collected tax from customer and paid to exchequer, refund thereof, on account of adjudication must, naturally reach person who paid it, and not intermediary. Even where such amount is withheld, it goes to State exchequer and becomes available for welfare of public at large. second respondent, which has no traits of sovereignty, cannot be permitted to take such plea. At any rate, when amount was collected from specified stevedore contractor, and contractor in turn has undertaken work with owner of ship, for loading or unloading, on lump sum, theory does not have any application. As regards second, namely, difficulty in identifying agency to be refunded, even petitioner did not insist that amount should be paid to it. Its endeavour is only to ensure that amount is refunded to concerned agency from whom it was collected. second respondent would have liberty to undertake proper verification, in context of refunding amount. If any doubt exists, in this regard, correspondence can be entertained, either with agency, or with petitioner. It is only on full satisfaction of second respondent, about identity of agency, that relevant amount can be refunded. writ petition is, therefore, allowed directing that: (a) second respondent shall be under obligation to refund amount collected towards fringe benefit tax along with accrued interest to respective stevedores from whom it was collected duly identifying them, within two months from date of receipt of copy of this order. (b) We also make it clear that second respondent shall not be under any obligation towards fringe benefit tax for benefits paid to employees supplied by it to stevedores. (c) If any doubt is entertained in this behalf as to identity, it is open to second respondent to seek necessary information or clarification from petitioner, and (d) If second respondent paid any service tax on amount collected by it towards service tax, it need not refund same. miscellaneous petitions filed in this writ petition shall stand disposed of. There shall be no order as to costs. *** Visakhapatnam Stevedores Association v. Union of India
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