2007 (9) TMI 395 - SC - VAT and Sales Tax

Whether form IV issued in the year 2001-02 can be revised in 2005-06 on the ground that the entertainment tax was collected on the basis that Serilingampally Municipality was a III grade municipality in spite of the fact that it was notified as special grade municipality with effect from May 18, 2001? Held that - Appeal allowed. The question in regard to the quantum of difference may be determined by an appropriate authority after giving an opportunity of hearing to the respondent. We, however, make it clear that the respondent shall neither be liable to pay any interest on the said amount nor shall not be exigible to any penalty. We also make it clear that the computation of the difference in the amount of tax shall be confined only to the matter of upgradation of municipality and to no other.

Summary

Issues Involved:
1. Revision of Form IV permit for the assessment year 2001-02.
2. Levy and collection of entertainment tax at a higher rate.
3. Retrospective effect of tax levy.
4. Applicability of judgments in similar cases.
5. Compliance with principles of natural justice in rectifying mistakes.

Detailed Analysis:

1. Revision of Form IV Permit for the Assessment Year 2001-02:
The petitioner contended that the respondent's action of revising the Form IV permit for the assessment year 2001-02 was arbitrary, illegal, and without authority of law. The petitioner had opted to pay tax under the slab system and had been issued a Form IV permit based on the status of Serilingampally Municipality as a III grade municipality. The respondent, however, issued a show cause notice in 2005 proposing to revise the permit on the grounds that the municipality had been upgraded to a selection grade municipality effective May 18, 2001. The petitioner argued that the revision of the permit and the demand for higher tax at this belated stage amounted to a retrospective levy of tax, which is impermissible.

2. Levy and Collection of Entertainment Tax at a Higher Rate:
The respondent argued that the petitioner was required to pay entertainment tax at a higher rate due to the upgradation of Serilingampally Municipality. The petitioner had initially filed Form III indicating the municipality as III grade and was issued a Form IV permit accordingly. However, the municipality was upgraded to selection grade during the assessment year, necessitating a higher tax rate. The respondent contended that the petitioner failed to file a revised Form III after the upgradation and continued to pay tax at the lower rate applicable to a III grade municipality.

3. Retrospective Effect of Tax Levy:
The court examined whether the respondent could revise the tax rate retrospectively. The petitioner relied on the judgment in Swamy Theatre v. Deputy Commercial Tax Officer, Hyderabad, which held that the authorities could vary the tax only during the period of option and not after its expiration. The court noted that the show cause notice was issued in 2005, long after the option period for the assessment year 2001-02 had ended. Therefore, varying the tax at this length of time was deemed impermissible and illegal.

4. Applicability of Judgments in Similar Cases:
The court considered the applicability of the judgments in Swamy Theatre and Sikender Picture Palace v. Assistant Commercial Tax Officer. In Swamy Theatre, it was held that the power to vary the tax is confined to the period of option. The court found this judgment applicable to the present case, as the respondent's action to revise the tax beyond the option period was not permissible. The judgment in Sikender Picture Palace was distinguished as it arose under different circumstances and was not relevant to the present case.

5. Compliance with Principles of Natural Justice in Rectifying Mistakes:
The Supreme Court emphasized the importance of complying with principles of natural justice when rectifying administrative mistakes. The court noted that the mistake in the present case was not apparent on the face of the records and required a hearing to the affected party. The court cited Union of India v. Bikash Kuanar and Shri Shekhar Ghosh v. Union of India, which held that rectification of mistakes should be done expeditiously and with due compliance with natural justice principles.

Conclusion:
The court concluded that the respondent's action to revise the Form IV permit and levy higher tax retrospectively was impermissible under the law. The impugned orders were set aside, and the writ petition was allowed. The Supreme Court, while allowing the appeal to the extent of rectifying the mistake, directed that the respondent should not be liable for any interest or penalty and that the computation of the tax difference should be confined to the matter of upgradation of the municipality.