2010 (5) TMI 754 - HC - VAT and Sales Tax

Whether under the facts and circumstances the assessee is entitle to set-off under section 4BB of the Act from the gross turnover of the purchase value of the raw material which the assessee has purchased from the dealer who is exempt from payment of tax under section 4A of the Act? Held that - The dealer, M/s. Mahaveer Iron Industry Pvt. Ltd., who has been given full exemption under section 4A of the Act was assessed to tax on the material sold to the assessee/revisionist and the tax so assessed on the sale of the said goods was deducted from his eligibility amount. Accordingly, it amounts to the payment of tax by way of adjustment. Section 4BB has not prescribed the manner of payment of tax and manner of payment cannot be confined to payment by actual tender but it would include payment of tax by adjustment also. In favour of assessee.

Summary

Issues:
1. Entitlement to set-off under section 4BB of the U.P. Trade Tax Act, 1948 for an assessee purchasing raw material from a dealer exempt from tax under section 4A of the Act.

Analysis:
The revision before the Allahabad High Court involved a dispute concerning the entitlement of an assessee to set-off under section 4BB of the U.P. Trade Tax Act, 1948 for the assessment year 1998-99. The assessee, engaged in the business of manufacturing and selling iron and steel goods, purchased raw material from a dealer exempt from tax under section 4A of the Act. The Tribunal allowed the benefit of set-off to the assessee, which was challenged by the Revenue in the revision.

The key contention raised by the learned standing counsel was that the conditions specified under section 4BB must be fully met for the grant of set-off, including the actual payment of tax on the purchased raw material. The assessing authority had denied the set-off to the assessee on the grounds of no actual tax payment on the raw material. However, the Tribunal overturned this decision and granted the set-off to the assessee.

The critical question of law raised for determination was whether the assessee was entitled to set-off under section 4BB from the gross turnover of the purchased raw material, considering the exemption status of the selling dealer under section 4A of the Act. The interpretation of section 4BB was crucial, which required tax payment on raw material for set-off, according to the Revenue.

In response, the assessee's counsel argued that the mode of tax payment was immaterial for section 4BB's benefit, emphasizing the assessment and payment of tax on raw material or packing material. The counsel highlighted the scheme of the Act, where exemption certificates are issued to dealers under section 4A, and tax liabilities are adjusted against the exemption limit without actual tax payment, constituting payment through adjustments.

The counsel further contended that the absence of a specific payment method in section 4BB allowed for tax payment through adjustments, as evidenced by the assessment and adjustment of tax liability in the dealer's eligibility certificate. Referring to judicial precedent, the counsel supported the argument that assessment and deduction from the eligibility amount equated to tax payment, justifying the grant of set-off to the assessee.

The High Court, aligning with the assessee's arguments, held that the Tribunal's decision to allow the set-off was legally sound. The court emphasized that payment of tax through adjustments was valid, as demonstrated by the dealer's assessment and deduction from the eligibility amount, constituting tax payment. The court dismissed the revision, affirming the entitlement of the assessee to set-off under section 4BB, despite the absence of actual tax payment on the raw material, based on the adjustment mechanism.

Therefore, the judgment clarified the interpretation of section 4BB, emphasizing that tax payment through adjustments was permissible for set-off benefits, ultimately ruling in favor of the assessee and dismissing the Revenue's revision.