2012 (3) TMI 378 - HC - VAT and Sales Tax

Deduction of value added tax at four per cent from the due payment of the petitioner - provisions contained in the Tripura Value Added Tax Act, 2004 and the Rules framed thereunder challenged to be unconstitutional to the extent of requiring flat rate deductions without reference of tax liability - deduction of tax from the bills of the petitioner for the transportation work undertaken by it questioned Held that - Deduction of four per cent from the bills is referable to tax liability and not de hors thereof. Thus, deduction of four per cent from the bills of the petitioner cannot be without considering its tax liability. This being the settled legal position, the petitioner may give a declaration as to its taxable turnover out of the payment of the bill with a copy to the assessing authority and the respondents will make deduction of such tax as is considered to be referable to tax liability of the petitioner and pay the said amount to the credit of the Sales Tax Department. This will be without prejudice to the provisions of assessment, levy of interest, penalty, recovery or any other statutory provisions and will not in any manner affect the statutory rights for levy and collection of taxes. Thus do not consider necessary to deal with any other questions raised in the writ petition as the said questions can be adjudicated by the statutory authorities in accordance with law. The tax already deducted will be liable to be adjusted in the order of final assessment.

Issues Involved:
1. Quashing of deduction of value-added tax (VAT) at four percent from the petitioner's due payment.
2. Constitutionality of the Tripura Value Added Tax Act, 2004, and the Rules framed thereunder regarding flat rate deductions.
3. Injunction against the deduction of tax from the petitioner's bills for transportation work.
4. Legislative competence of the State regarding tax deduction without reference to tax liability.
5. Liability to pay tax on the transaction of transportation.

Detailed Analysis:

1. Quashing of Deduction of Value-Added Tax (VAT) at Four Percent:
The petitioner sought to quash the deduction of VAT at four percent from its due payments, arguing that such deductions were made without reference to its actual tax liability. The court noted that the deduction of four percent from the bills is referable to tax liability and not independent of it. Thus, deduction cannot be made without considering the petitioner's tax liability. The petitioner was allowed to give a declaration as to its taxable turnover, and the respondents were directed to make deductions based on this declaration, subject to final assessment.

2. Constitutionality of the Tripura Value Added Tax Act, 2004:
The petitioner challenged the constitutionality of the Tripura Value Added Tax Act, 2004, and the Rules framed thereunder to the extent that they required flat rate deductions without reference to actual tax liability. The court referenced multiple judgments, including Steel Authority of India Ltd. v. State of Orissa and Nathpa Jhakri JT. Venture v. State of Himachal Pradesh, which held that recovery of tax out of non-taxable turnover is beyond the powers of the State Legislature. The court concluded that provisions for deduction of tax at source must be read as limited to taxable turnover.

3. Injunction Against Deduction of Tax from Petitioner's Bills:
The petitioner sought an injunction against the deduction of tax from its bills for transportation work. The court held that deductions must be made with reference to the petitioner's tax liability. The petitioner could provide a declaration of its taxable turnover, and deductions should be made accordingly. This arrangement would continue until the State laid down an appropriate mechanism for computing the amount of deduction from the contractor's bill.

4. Legislative Competence of the State:
The petitioner argued that the State lacked legislative competence to mandate deductions from its bills without reference to actual tax liability. The court agreed, referencing the Supreme Court's rulings that the State Legislature cannot levy sales tax on inter-State sales, outside sales, or sales in the course of import. The court emphasized that deductions at source must be linked to the tax liability, and arbitrary deductions are not permissible.

5. Liability to Pay Tax on Transportation Transactions:
The petitioner contended that it should not be liable to pay tax on transportation transactions as there was no transfer of the right to use the goods (vehicles), and only the service of transportation was involved. The court did not delve into this issue in detail, stating that the liability of the petitioner to tax would be determined during assessment proceedings.

Conclusion:
The court concluded that the deduction of tax at source from the petitioner's bills must be made with reference to its tax liability. The petitioner was allowed to declare its taxable turnover, and deductions should be made accordingly. The court did not find it necessary to address other questions raised in the writ petition, as they could be adjudicated by statutory authorities. The writ petition was disposed of with the direction that the tax already deducted would be adjusted in the final assessment order.

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