2010 (2) TMI 1105 - HC - VAT and Sales Tax

Demand of interest under section 8(1) of the Act challenged - Held that - The tax assessed on the warranty claim amount by reassessment order under section 21 cannot be said to be admitted tax for the purpose of demand of interest under section 8(1) of the Act. The petitioner is only liable to pay interest under section 8(1B) of the Act. We hold that the petitioner is not liable to pay interest under section 8(1) of the Act for the assessment years 1999-2000 to 2002-03 and is only liable to pay interest under section 8(1B) of the Act. The claim of the petitioner for the assessment year 2003-04 is rejected.

Summary

Issues:
1. Taxability of warranty claim amount received by the petitioner.
2. Liability of interest under section 8(1) of the U.P. Trade Tax Act, 1948.
3. Applicability of interest under section 8(1B) of the Act.
4. Interpretation of the term "admitted tax" for the purpose of levy of interest.

Analysis:
1. The petitioner, engaged in the business of selling scooters, motorcycles, and spare parts, received amounts from the company for supplying parts during the warranty period. The assessing authority initiated proceedings based on a court decision, levying tax on these warranty claim amounts. The petitioner contended that tax on warranty claims was not part of the taxable turnover. The court examined previous assessment orders and held that the petitioner was not liable to pay tax on warranty claims initially. However, due to a subsequent court decision, tax was imposed on these claims. The court ruled that interest under section 8(1) was not applicable as the tax on warranty claims was not admitted initially, directing the petitioner to pay interest under section 8(1B) instead.

2. The learned counsel for the petitioner argued against the demand of interest under section 8(1) of the Act, stating that the petitioner did not admit liability for tax on warranty claims initially. The court referred to the decision in the case of Hindustan Aluminium Corporation, emphasizing the requirement for the assessee to pay tax on the disclosed turnover or as admitted in the return. The court further cited the case of Annapurna Biscuit, stating that if a dealer does not admit tax liability on a turnover initially, interest cannot be charged under section 8(1). The court found merit in the petitioner's argument for assessment years 1999-2000 to 2002-03, directing the assessing authority to modify the order regarding interest.

3. For the assessment year 2003-04, the court rejected the petitioner's claim, stating that interest under section 8(1) was justified based on a previous court decision holding warranty claim amounts taxable. The court emphasized that the petitioner should have deposited tax on warranty claims, making it tax admittedly payable under the law. Therefore, interest under section 8(1) was deemed chargeable from a specified date.

4. The court differentiated between tax admitted initially and tax imposed later due to legal interpretations. It held that interest under section 8(1) was not applicable as the tax on warranty claims was not admitted initially, making the petitioner liable only for interest under section 8(1B) for certain assessment years. The court allowed the writ petition in part, exempting the petitioner from paying interest under section 8(1) for specific assessment years while upholding the liability for interest under section 8(1B).

This detailed analysis of the judgment addresses the taxability of warranty claim amounts, the liability of interest under different sections of the U.P. Trade Tax Act, and the interpretation of "admitted tax" for the purpose of interest levy, providing a comprehensive understanding of the legal issues involved in the case.