2009 (8) TMI 1105 - HC - VAT and Sales Tax

Escaped turnover - whether the sugarcane , which was used as industrial input for sugar manufacturing was exigible to tax at four per cent, since sugar was exempted from taxation by entry 70 in Part II of the OVAT Act placing reliance on the Explanation thereto since sugar was subject to levy of excise duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957? Held that - A bar perusal of the assessment order shows that the assessing authority has not correctly understood the import of entry 108 and the Explanation to Part II of Schedule B, which negates collection of VAT The reasons ascribed by the assessing authority while completing the assessment being based on a misinterpretation of the provisions of the OVAT Act, we quash the order of assessment dated February 12, 2007 (annexure 1) passed by the Sales Tax Officer, Bhanjanagar Circle, Bhanjanagar. The amount, which has been deposited by the petitioner by virtue of the order of this court dated March 13, 2007, be refunded to it by the Revenue, on proper application, within three months from the date of communication of this judgment, failing which, the petitioner shall be entitled to interest at 10 per cent per annum to be computed from the date of deposit.

Summary

Issues: Challenge to assessment order under OVAT Act for tax on sugarcane used in sugar manufacturing.

Analysis:
The petitioner, a sugar manufacturing company, challenged an assessment order by the Sales Tax Officer for the period 2005-06, claiming jurisdictional issues. The assessment was based on the taxability of sugarcane used as an industrial input for sugar production, taxed at four percent due to sugar's exemption under the OVAT Act. The petitioner contended that the assessing authority incorrectly applied the law, leading to the assessment. The court examined relevant provisions of the OVAT Act, specifically section 12 regarding tax on purchase and section 17 on goods exempted from tax. It was noted that while sugar was exempted, sugarcane was wrongly taxed based on a misinterpretation of the law.

The court referred to the Explanation in Schedule B of the Act, which states that goods like sugar are not subject to VAT until they are taxed under the Additional Duties of Excise Act. The court cited a Supreme Court decision emphasizing the distinction between tax liability and actual payment, highlighting that exemption presupposes a liability. As the assessing authority misunderstood the law, the court quashed the assessment order and directed the Revenue to refund the amount deposited by the petitioner within three months, with interest if delayed.

In conclusion, the court allowed the writ petition, finding in favor of the petitioner due to the incorrect application of the OVAT Act by the assessing authority. The judgment highlights the importance of a proper interpretation of tax laws and the necessity for authorities to adhere to statutory provisions while making assessments.