1998 (7) TMI 660 - AT - VAT and Sales Tax

Issues Involved:

1. Whether the tax element that forms part of the sale price is to be deducted from the gross turnover for the purpose of calculating turnover tax.
2. Whether section 9A of the West Bengal Sales Tax Act, 1954, is liable to be declared ultra vires on the grounds of being arbitrary and unreasonable.

Detailed Analysis:

1. Deduction of Tax Element from Gross Turnover for Turnover Tax Calculation

The primary issue is whether the tax element included in the sale price should be deducted from the gross turnover when calculating turnover tax under section 4AAA of the West Bengal Sales Tax Act, 1954. The applicant-company argued that the tax element should not form part of the taxable turnover, relying on the definition of "turnover" in section 2(e) of the Act, which allows for certain deductions, including the sales tax component.

The Tribunal examined the definition of "turnover" in section 2(e) and the formula provided in section 4(1a) for calculating the sales tax component. It was noted that the term "gross turnover" in section 4AAA does not create a new definition distinct from that in section 2(e) but indicates the inclusion of several items of turnover. The Tribunal concluded that the deductions specified in section 2(e) must be applied before calculating the gross turnover for turnover tax purposes. The Tribunal held that the applicant was correct in deducting the sales tax component from the sale price to arrive at the taxable turnover for turnover tax.

2. Constitutional Validity of Section 9A

The applicant challenged the constitutional validity of section 9A, arguing that it was arbitrary and unreasonable. The applicant contended that section 9A did not provide a machinery provision for assessment, depriving the assessee of the opportunity to make submissions in support of their return. The applicant further argued that the provision for penalty under section 9A(3) was oppressive as it did not distinguish between deliberate concealment and bona fide errors.

The Tribunal found that section 9A(2) provides for a reasonable opportunity of being heard before reopening an assessment, thereby ensuring that the assessee is not prejudiced without being heard. The Tribunal also referred to the Supreme Court's decision in Hindustan Steel Ltd. v. State of Orissa, which held that even if a minimum penalty is prescribed, the authority competent to impose the penalty should consider the nature and extent of the infraction and the circumstances in which it occurred. The Tribunal concluded that section 9A was not arbitrary or unreasonable and upheld its constitutional validity.

Separate Judgments:

Judicial Member's Judgment:

The Judicial Member agreed with the applicant's interpretation of section 4AAA, holding that the definition of "turnover" in section 2(e) applies to section 4AAA. The Judicial Member emphasized that the non obstante clause in section 4AAA(1) only applies to determining the types of dealers liable for turnover tax and not to the calculation of taxable turnover. The Judicial Member concluded that the applicant was correct in deducting the sales tax component from the sale price for turnover tax purposes and that the impugned notice for reopening the assessment was unwarranted.

Technical Member's Judgment:

The Technical Member also agreed with the applicant's interpretation, stating that the definition of "turnover" in section 2(e) should be applied to section 4AAA. The Technical Member noted that the non obstante clause in section 4AAA does not act as a bar to the application of the definition of "turnover" in section 2(e). The Technical Member held that the correct interpretation of section 4AAA involves accepting the definition of "turnover" in section 2(e) for calculating the gross turnover.

Chairman's Dissenting Judgment:

The Chairman disagreed with the interpretation given by the Judicial and Technical Members. The Chairman argued that section 4AAA is a self-contained code for turnover tax and that the non obstante clause in section 4AAA(1) signifies the legislative intent to exclude the definition of "turnover" in section 2(e) for turnover tax purposes. The Chairman held that the deductions from gross turnover for turnover tax purposes are exhaustively mentioned in section 4AAA(2) and that no other deductions are permissible. The Chairman concluded that the impugned notice for reopening the assessment was valid and that the applicant's submissions should be made to the respondent authority.

Final Order:

In view of the majority judgments, the application was allowed in part. The respondents were restrained from giving effect to or acting upon the impugned notice dated November 15, 1996. The interim order of the Tribunal dated January 6, 1997, was made absolute, with no order as to costs. The operation of the judgment and order was stayed for eight weeks from the date of the judgment.

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