2011 (1) TMI 1296 - HC - VAT and Sales Tax

Demand notice seeked t be quashed - Held that - We are of the considered opinion that for dispute between the two Departments, the petitioner cannot suffer. In view of the admitted fact that the Excise Commissioner admits the liability to pay sales tax due, we do not consider it expedient to remit the matter to the State Government. As such, we quash the impugned demand notice dated January 14, 1993 contained in annexure 8 issued by the Assistant Commissioner, Commercial Taxes, Bhagalpur. It would be open for the Commercial Tax Department to recover the same from the Excise Department. We accordingly award cost of ₹ 20,000 on the Excise Department which would be payable to the petitioner within a period of three months from today.

Summary

Issues:
Quashing demand notice by Assistant Commissioner, Commercial Taxes; Dispute over sales tax liability between petitioner and Excise Department; Liability of petitioner to pay sales tax; Interpretation of relevant laws and previous judgments; Burden of litigation on petitioner due to inter-departmental dispute.

Analysis:
The petitioner, a manufacturing unit of rectified spirit, sought to quash a demand notice for unpaid sales tax issued by the Assistant Commissioner, Commercial Taxes. The petitioner supplied rectified spirit to the bonded warehouse maintained by the State Government through the Excise Department. The Commercial Taxes Department alleged non-payment of sales tax liability by the petitioner for periods before and after April 1, 1989. The petitioner claimed it couldn't pay as the purchaser, the Excise Department, hadn't paid them. The Commissioner of Excise supported this stance in a letter to the Commissioner of Commercial Taxes, emphasizing that manufacturers selling to government warehouses through the Excise Department were not liable to pay sales tax. Despite ongoing disputes between the Excise and Sales Tax Departments, the Commercial Taxes Commissioner directed recovery from the petitioner from April 1, 1989. The Sales Tax Department pressured the petitioner, who made representations to both Excise and Commercial Taxes Departments, citing the Excise Department's assurance to resolve the matter. The Assistant Commissioner's demand notice for sales tax payment was challenged by the petitioner.

The Court noted the petitioner's supply of rectified spirit to the government warehouse through the Excise Department without receiving the sales tax amount. The liability for sales tax payment was still unresolved, with the State Government yet to decide on the point of levy or collection responsibility. Referring to a similar case, the Court emphasized that a manufacturing unit should not suffer due to inter-departmental disputes when one department was liable for the tax payment. The Court distinguished a previous judgment cited by the State counsel, noting that it involved a private party, unlike the current scenario where the supply was to a government department. Consequently, the Court held that the petitioner should not bear the brunt of the dispute between the Excise and Sales Tax Departments. Given the Excise Commissioner's acknowledgment of the sales tax liability, the Court quashed the demand notice, directing the Commercial Tax Department to recover from the Excise Department.

The Court highlighted the petitioner's 15-year litigation ordeal due to the departmental standoff, causing unnecessary burden and harassment. As a result, the Court imposed a cost of Rs. 20,000 on the Excise Department, payable to the petitioner within three months, with the Secretary of the Excise Department responsible for ensuring the payment. This comprehensive judgment resolved the issues surrounding the demand notice, sales tax liability, inter-departmental disputes, and the petitioner's undue litigation burden effectively.