2011 (11) TMI 600 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of the clarification issued by the Finance Department (Tax Division) of Government of Rajasthan on October 10, 2008.
2. Interpretation of the term "tax payable" under the Rajasthan Value Added Tax Act, 2003.
3. Applicability of the Rajasthan Investment Promotion Policy, 2003 (RIPS 2003) in relation to the clarification.

Detailed Analysis:

1. Legality of the Clarification Issued by the Finance Department:

The petitioners challenged the clarification issued by the Finance Department (Tax Division) of Government of Rajasthan on October 10, 2008. The clarification stated that the term "tax payable" under the Rajasthan Value Added Tax Act, 2003 is the amount of tax leviable under the Act less the amount of input-tax credit for the purpose of the Scheme. The petitioners contended that this clarification was contrary to the provisions of RIPS, 2003 and the Rajasthan VAT Act, 2003, which does not define "tax payable" explicitly.

The court found that the Finance Department had the authority to issue such clarifications under clause 11 of RIPS, 2003. The court held that the clarification issued was within the power and jurisdiction of the Finance Department and was consistent with the provisions of the VAT Act, 2003, particularly section 17. The clarification was deemed to be legal and justified.

2. Interpretation of the Term "Tax Payable" Under the Rajasthan Value Added Tax Act, 2003:

The petitioners argued that the term "tax payable" should be interpreted to mean the gross output tax payable under the VAT Act, 2003, and not the net tax payable after deducting input-tax credit. The petitioners contended that the benefit of interest subsidy should be calculated based on the gross tax payable.

The court disagreed with the petitioners' interpretation. It held that the term "tax payable" under the VAT Act, 2003, as defined in section 17, is the net tax payable by a registered dealer for a tax period. This is computed by the formula: T = (O+R+P) - I, where T is the net tax payable, O is the amount of output tax, R is the amount of reverse tax, P is the amount of tax payable under sub-section (2) of section 4, and I is the amount of input tax. The court emphasized that the VAT regime aims to remove the cascading effect of tax on successive sales, allowing for the deduction of input tax from the output tax liability.

3. Applicability of RIPS 2003 in Relation to the Clarification:

The petitioners contended that the clarification issued on October 10, 2008, was contrary to the provisions of RIPS, 2003, which did not define "tax payable." They argued that the benefit of interest subsidy should not be limited to the net tax payable but should be based on the gross tax payable.

The court found that clause 7 of RIPS, 2003, which provides for interest subsidy and wage/employment subsidy, clearly indicates that the subsidy is subject to a maximum limit of fifty percent of the tax payable and deposited under the relevant Sales Tax Laws. The court held that the term "tax payable" in RIPS, 2003, should be interpreted as the net tax payable under the VAT Act, 2003, in line with the clarification issued by the Finance Department.

The court concluded that the clarification issued on October 10, 2008, was in consonance with the Rajasthan VAT Act, 2003, and RIPS, 2003. The court dismissed the writ petitions, finding no merit in the petitioners' contentions and upholding the legality of the clarification and the subsequent orders passed by the authorities.