2009 (3) TMI 872 - HC - VAT and Sales Tax

State Development Tax - whether payable by the petitioners in addition to the composition amount mentioned in the compounding scheme? Held that - The tax payable under the compounding scheme is a composition amount in lieu of the tax payable, is introduced as a simplified method of payment tax overriding the complicated process of assessment wherein the gross turnover and net turnover are being determined. If the State Development Tax is held to be chargeable over and above, the composition amount, for the purpose of determination of the State Development Tax the aggregate turnover and taxable tax are to be determined which may lead to passing, therefore, same complicated procedure of determination of gross and taxable turnover. In the circumstances, the whole object of the compounding scheme would frustrate. Thus State Development Tax is not payable by the petitioners in addition to the composition amount mentioned in the compounding scheme. The circular dated 4.6.2007 issued by the Commissioner of Trade Tax is erroneous and liable to be set aside. Appeal allowed.

Issues Involved:
1. Liability of petitioners to pay State Development Tax under the compounding scheme.
2. Interpretation of Section 7-D and Section 3-H of the U.P. Trade Tax Act.
3. Validity of the circular dated 4.6.2007 issued by the Commissioner of Trade Tax.

Detailed Analysis:

1. Liability of petitioners to pay State Development Tax under the compounding scheme:
The petitioners, civil and electrical contractors, challenged the levy of one percent State Development Tax under the compounding scheme for the assessment years 2005-2006. They argued that the composition amount agreed under Section 7-D of the U.P. Trade Tax Act should be in lieu of all taxes, including the State Development Tax introduced under Section 3-H of the Act. The court agreed with the petitioners, holding that the compounding scheme provides an alternative method of assessment, and once the composition amount is fixed, the assessing authority cannot demand any additional amount, including State Development Tax. The court emphasized that Section 7-D has an overriding effect over other sections, including Section 3-H.

2. Interpretation of Section 7-D and Section 3-H of the U.P. Trade Tax Act:
The court examined the relevant provisions of the U.P. Trade Tax Act, particularly Section 7-D and Section 3-H. Section 7-D allows for the payment of a lump sum in lieu of regular tax, and it starts with a non-obstante clause, indicating its overriding effect. Section 3-H, introduced later, creates an independent charge for State Development Tax but does not explicitly override Section 7-D. The court concluded that the composition amount under Section 7-D includes all taxes, including the State Development Tax, unless explicitly stated otherwise in the compounding scheme. Therefore, the State Development Tax cannot be charged separately in addition to the composition amount.

3. Validity of the circular dated 4.6.2007 issued by the Commissioner of Trade Tax:
The petitioners challenged the circular dated 4.6.2007, which stated that one percent State Development Tax is leviable under the compounding scheme. The court found the circular erroneous, as it contradicted the provisions of Section 7-D, which provides for a lump sum payment in lieu of all taxes. The court held that the circular was invalid and set it aside, along with the orders passed by the assessing authority demanding the State Development Tax.

Conclusion:
The court allowed the writ petitions, quashing the circular dated 4.6.2007 and the orders demanding State Development Tax. It held that the State Development Tax is not payable in addition to the composition amount under the compounding scheme, reinforcing the principle that the composition amount under Section 7-D includes all taxes, including the State Development Tax.

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