2013 (2) TMI 682 - SC - VAT and Sales Tax

State Development Tax - whether payable by the petitioners in addition to the composition amount mentioned in the compounding scheme - Circular demanding tax annulled by High Court 2009 (3) TMI 872 - ALLAHABAD HIGH COURT - whether the Commissioner was justified in issuing the Circular dated 04.06.2007 on the sole ground that with the introduction of the State Development Tax, there is a change in the rate of tax as provided under the proviso to Section 7-D of the Act and therefore, the assessing authorities are expected to levy and collect the State Development Tax in addition to the composition fee payable by the dealer - Held that - The State Legislature by inserting the amended provisions by the Act 9 of 2005 has introduced the levy and collection of the State Development Tax. Except for some changes, the State Development Tax bears resemblance to the levy and collection of the Turnover Tax. We say so, for the reason that the State Development Tax is levied on a particular class of dealers at a particular rate. What is added in Section 3-H of the Act, after its amendment is that the said section will operate only for a period of five years from the date of issuance of the notification by the State Government. Section 7-D of the Act provides for composition of amount at an agreed rate on the turnover of the dealer, in lieu of taxes payable by the dealer under the Act. Firstly, offer would be made by the Assessee and the same requires to be accepted by the assessing authority and then only there would be a concluded contract between the dealer and the assessing authority for payment of tax. The proviso, as we have already noticed, comes into play only when there is a change in the rate of tax. It provides, that, when there is any change in the rate of tax on the goods, such increase will proportionately affect the rate of compounding of tax. The introduction of State Development Tax has not led to any change in the rate of tax on goods and therefore there is no proportional change in the rate of compounding of tax for the purposes of proviso to Section 7-D of the Act. By virtue of the circular issued by the Commissioner of Tax, the dealers though have agreed to pay the tax under Section 7-D of the Act are also expected to pay the State Development Tax. This, in our opinion, is fallacious view of the Commissioner. The Commissioner of Commercial Taxes could have issued the circular only if there is a change in the rate of tax. There is difference between the change in the rate of tax and introduction of altogether a new provision or new kind of tax for levy and collection from the dealers. - circular instructions issued by the Commissioner dated 04.06.2007 cannot be sustained and, therefore, the same requires to be set aside - Decided against Revenue.

Issues Involved:
1. Validity of the circular issued by the Commissioner of Trade Tax, Uttar Pradesh dated 04.06.2007.
2. Interpretation of Section 7-D of the Uttar Pradesh Trade Tax Act, 1948.
3. Application of State Development Tax under Section 3-H of the Act.

Detailed Analysis:

1. Validity of the Circular Issued by the Commissioner of Trade Tax, Uttar Pradesh Dated 04.06.2007:

The core issue addressed by the Supreme Court was the validity of the circular dated 04.06.2007 issued by the Commissioner of Trade Tax, Uttar Pradesh. The circular directed the assessing authorities to recover State Development Tax from dealers under Section 3-H of the Uttar Pradesh Trade Tax Act, 1948, in addition to the composition money payable under the scheme of composition.

The respondents challenged this circular before the Allahabad High Court, which annulled the circular instructions and set aside the orders of assessment passed pursuant to the circular. The Supreme Court upheld the High Court's decision, stating that the introduction of the State Development Tax did not constitute a change in the rate of tax as envisaged under the proviso to Section 7-D of the Act.

2. Interpretation of Section 7-D of the Uttar Pradesh Trade Tax Act, 1948:

Section 7-D of the Act provides for the composition of tax liability, allowing the state government to accept a lump sum amount in lieu of tax payable by the dealer. The proviso to Section 7-D states that any change in the rate of tax will proportionately affect the lump sum or the rate agreed upon.

The Supreme Court clarified that the term "change in the rate of tax" refers to a modification in the existing tax rate rather than the introduction of a new kind of tax. The Court concluded that the introduction of the State Development Tax under Section 3-H did not alter the existing tax rate but introduced a separate tax, thus not triggering the proviso to Section 7-D.

3. Application of State Development Tax under Section 3-H of the Act:

Section 3-H of the Act, introduced by Act No. 9 of 2005, levies a State Development Tax at a rate not exceeding one percent on dealers whose aggregate turnover exceeds fifty lakh rupees. This tax is in addition to the tax payable under other provisions of the Act and is applicable for a period of five years from the date of notification.

The Supreme Court noted that the State Development Tax is a separate and independent charge on the taxable turnover, distinct from the composition money agreed upon under Section 7-D. The Court held that the Commissioner of Trade Tax's circular erroneously conflated the introduction of a new tax with a change in the rate of an existing tax.

Conclusion:

The Supreme Court set aside the circular instructions issued by the Commissioner of Trade Tax dated 04.06.2007, affirming the High Court's judgment. The Court left it open to the assessing authorities to demand the State Development Tax from dealers who had opted for the composition scheme, provided such demand notices are issued in accordance with law. The affected dealers retain the right to challenge such demand notices before the appropriate forum. The appeals were disposed of with parties bearing their respective costs.

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