2010 (1) TMI 1060 - HC - VAT and Sales Tax

Whether Assessing Authorities have not allowed adjustment/ set off of the tax quantified under Section 8 (1) of the Central Sales Tax Act from the monetary limit of the exemption mentioned in the Eligibility Certificate granted to the petitioners under Section 4-A of the U.P. Trade Tax Act for the relevant assessment years? Held that - Whereas the amendment to the Central Sales Tax Act by Finance Act No.20 of 2002 published on 13.5.2002 are valid and do not suffer from any vice of discrimination and also do not violate principle of promissory estoppel qua the petitioner the higher rate of tax payable for non compliance of the amended provisions of Section 8 (5) namely non production of Form C/D cannot be taken to be a ground to deny the set off of such higher rate of tax from the limits prescribed in the eligibility certificate under Section 4-A of the Trade Tax Act subject to other conditions namely the maximum limit for particular year or period and maximum amount for which such exemption is provided. All the writ petitions are partly allowed. The assessing authorities are required to modify the assessment orders accordingly and to allow set off to the petitioners which was earlier denied to them on the rate of tax without the benefit of reduced rate of tax on the interstate transactions for which Form C/D were not produced. The required modification shall be carried out within a period of two months from the date of production of this judgment.

Summary

Issues Involved:
1. Adjustment/set off of tax under Section 8(1) of the Central Sales Tax Act from the exemption limit in the Eligibility Certificate under Section 4-A of the U.P. Trade Tax Act.
2. Applicability of the amendment to Section 8(5) of the Central Sales Tax Act by Finance Act No.20 of 2002.
3. Principle of promissory estoppel in light of the amendments.
4. Set off of higher tax rates due to non-production of Form C/D from the maximum monetary limit available under the Eligibility Certificate.

Issue-wise Detailed Analysis:

1. Adjustment/Set Off of Tax:
The petitioners challenged the assessment orders under the U.P. Trade Tax Act, where the Assessing Authorities did not allow the adjustment/set off of tax quantified under Section 8(1) of the Central Sales Tax Act from the exemption limit in the Eligibility Certificate under Section 4-A of the U.P. Trade Tax Act. The court initially passed interim orders allowing the benefit of tax exemption to continue as per the notifications dated 27.7.1991, 31.3.1995, 19.7.1996, and 21.2.1997, despite the withdrawal of these benefits from 15.10.2002 following the amendment by Finance Act No.20 of 2002.

2. Applicability of the Amendment to Section 8(5):
The amendment to Section 8(5) of the Central Sales Tax Act restricted the State Government's powers to exempt or reduce tax rates on interstate sales, requiring compliance with conditions specified in sub-section (4) of Section 8, including the production of Form C/D. The court held that the State Government could not grant exemptions or reductions in tax rates contrary to the amended Central Sales Tax Act. The eligibility certificate and exemptions granted were not withdrawn, nor were the tax rates increased or the quantum of exemptions decreased.

3. Principle of Promissory Estoppel:
The court ruled that the principle of promissory estoppel did not apply because the State Government's authority to grant exemptions was derived from the Central Act, which was subsequently amended. The court noted that the State Government could not issue a fresh notification or exercise discretion in variance with the amended Central Act.

4. Set Off of Higher Tax Rates:
The court addressed whether the higher tax rates due to non-production of Form C/D could be set off from the maximum monetary limit available under the Eligibility Certificate. The court found that the rate of tax has no bearing on the amount of tax benefit under the Eligibility Certificate. The incentive provided to the industry is not linked to the tax rate but to the production and fulfillment of other conditions. The court held that the higher rate of tax payable for non-compliance with the amended provisions of Section 8(5) (non-production of Form C/D) could still be set off from the limits prescribed in the Eligibility Certificate under Section 4-A of the U.P. Trade Tax Act.

Conclusion:
The court partly allowed the writ petitions, directing the assessing authorities to modify the assessment orders to allow the set off of higher tax rates from the exemption limits under the Eligibility Certificate. The required modifications were to be carried out within two months from the date of the judgment, with petitioners required to produce the judgment before the Assessing Authorities within 30 days.