2010 (9) TMI 970 - HC - VAT and Sales Tax

Demand notice directing petitioner No. 1 to pay the said amount of ₹ 5,68,575- Held that - In the case at hand, the petitioner is not alleging to have made any sale of coal or any sale, within the State of Tripura, of any taxable goods. In such circumstances, no tax can be realized from the petitioner. Independent of the agreement, which the respondents rely upon, there is, admittedly, no taxable liability of the petitioner. The demand, therefore, raised by the respondents, by their impugned notice of demand, dated March 5, 2010, directing the petitioner to pay a sum of ₹ 5,68,578, as tax, is wholly against law inasmuch as the respondents have no power to impose any tax on the petitioner without making an assessment in this regard, particularly, when the petitioner has started his production on and from January 12, 2009. Hence, the impugned demand notice cannot be allowed to stand good on record. The refusal, on the part of the respondents, to issue permit, in form XXVI, to petitioner No. 1, and refusal to let the petitioner bring coal to the State of Tripura, on the ground that petitioner No. 1 had not paid the instalments as per the agreement aforementioned, are wholly against the law. In short, thus, the impugned refusal to issue permit and also the impugned notice of demand are wholly arbitrary and without support of any provisions of law. No tax can be imposed upon, or realized from, a person unless the law provides therefor. Appeal allowed.

Summary

Issues:
1. Refusal to issue permit in form XXVI to the petitioner.
2. Demand raised by the respondents for payment of tax.
3. Applicability of section 15 of the VAT Act, 2004.
4. Imposition of tax without taxable liability.

Refusal to issue permit in form XXVI to the petitioner:
The petitioner, a registered partnership firm engaged in brick manufacturing, faced refusal of further permits to import coal due to non-payment of instalments as per an agreement with the State Government. The petitioner contended that the agreement was not binding as production had commenced after the agreement period. The respondents argued that issuance of permits was contingent on payment as agreed. The court held the refusal arbitrary, directing the issuance of permits to the petitioner without enforcing the agreement.

Demand raised by the respondents for payment of tax:
The respondents demanded a substantial sum as tax from the petitioner, citing non-payment post the first instalment. The petitioner disputed the liability, asserting that no tax was due as production began after the agreement period. The court emphasized that tax imposition requires a legal basis and cannot be arbitrary. The demand notice was quashed as the respondents lacked authority to levy tax without proper assessment.

Applicability of section 15 of the VAT Act, 2004:
The respondents relied on section 15 for composition of tax by registered dealers with turnover below a specified limit. The court analyzed the provision, highlighting that tax composition applies when taxable liability exists post-sales. As the petitioner had not engaged in relevant transactions, section 15 was deemed inapplicable, emphasizing that tax realization necessitates a taxable turnover as defined by the Act.

Imposition of tax without taxable liability:
The court reiterated that tax imposition requires a legal basis and cannot be arbitrary. As the petitioner had not engaged in transactions leading to taxable liability, the demand for tax payment was deemed unlawful. The court emphasized that tax cannot be imposed or realized without a legal foundation. The impugned demand notice was set aside, directing the respondents to issue permits to the petitioner as per law within a specified timeframe.