It seems Karnataka government and the Coffee Board are at loggerheads over the purchase tax issue, which has its origin in 1996.
In a latest development, the state government has issued a notice to the Board, which comes under the administrative control of the Union commerce ministry, to pay up Rs 423 crore (Rs 4.23 billion) within 15 days or face attachment of its assets.
This notice has created a lot of problems for the Board, which is already in trouble due to a price crash of coffee beans.
The notice threatened to attach the Coffee Board building in Bangalore and urged the banks to freeze the Board's accounts.
Karnataka commercial taxes department has even asked the two official tenants in the Coffee Board building - the Accountant General's office for Karnataka and the Karnataka Neeravari Nigama or state irrigation corporation - to pay the monthly rentals to the state commercial tax department.
During the period of pooling which ended in 1996, coffee growers had to mandatorily pool their produce with the Coffee Board which stored the beans and auctioned it to the trade and then gave the growers the proceeds.
In 1989, the state government wanted to levy a purchase-tax on the Coffee Board which stated that it was not involved in any commercial transaction but merely providing a service to the growers.
The government then made cumulative demands for Rs 109 crore (Rs 1.09 billion) for the period from 1980-81 to 1996-97. The Coffee Board filed a petition in the Karnataka high court, which suggested that the state appellate authorities within the department be approached.
Once the joint commissioner dismissed the appeal, a further appeal was filed before the state sales tax appellate tribunal where the case is pending.
A fortnight ago, the Union commerce ministry wrote to the Karnataka government, urging it to grant exemption from levy of this purchase tax under the relevant provisions of the state Sales Tax Act. The state response was in the form of the notice for Rs 423 crore served on the Coffee Board.