2003 (12) TMI 591 - HC - VAT and Sales Tax

Summary

Issues:
1. Entitlement to deferral of sales tax liability.
2. Interpretation of the agreement regarding deferral of tax liability.
3. Calculation and payment of additional sales tax.
4. Application of deferral scheme to new capacity sales.
5. Error in the Tribunal's decision.

Analysis:
1. The judgment addresses the issue of the assessee's entitlement to deferral of sales tax liability for units set up in a specific district, as per an agreement with the State. The agreement stipulates that the assessee can defer its tax liability after achieving base production and sales levels.

2. The interpretation of the agreement is crucial in determining the deferral of tax liability. The agreement specifies that once the base production and sales levels are reached, any further tax liability, including sales tax, surcharge, additional surcharge, additional sales tax, and central sales tax, is eligible for deferral.

3. The judgment delves into the calculation and payment of additional sales tax, which is payable at varying rates based on the assessee's turnover. The disagreement arises when the assessee's turnover crosses a certain threshold during the year, leading to a dispute regarding the applicable tax rate.

4. The application of the deferral scheme to sales from new capacity is discussed, emphasizing that the additional sales tax incurred due to increased sales from the new capacity should also be deferred. This aligns with the agreement's intent to provide working capital for newly created capacity.

5. The judgment highlights the error made by the Tribunal in demanding additional tax payments from the assessee, contrary to the provisions of the agreement. The decision sets aside the Tribunal's order and allows the writ petition in favor of the assessee, affirming the right to defer tax liabilities as per the agreement's terms.