2015 (8) TMI 1355 - HC - VAT and Sales Tax

Works contract - U.P. trade tax - composition fee - Circular provided for composition of trade tax if the contractor pays the amount representing one per cent of the total contract receipts - Circular was amended by Notification dated 28.10.2003. Therein, it essentially provided that, if the import of raw material goes more than five per cent of the contract amount, then, such contractor will have an option to deposit three per cent composition fee instead of one per cent and, in that situation, the tax assessment provision will not be applicable - whether the assessee is required to deposit the amount at the rate of three per cent and pay interest? Held that - even if the inter-state purchase of the raw material made by the revisionist exceeded five per cent, if the revisionist exercised the option to pay three per cent composition fee, then, that would put an end his tax liability for the period - Without there being tax liability, there cannot be a question of levying interest. Therefore, in place of the tax, which he would have had to pay under the earlier scheme, in view of his inter-state purchase having exceeded five per cent, as he had opted to pay three per cent and which he could possibly do only after 28.10.2003, it cannot be mulcted with interest for the period prior to 28.10.2003. Revision allowed - decided in favor of revisionist.

Summary

Issues:
1. Interpretation of the amended Circular regarding composition fee for trade tax assessment.
2. Imposition of interest on remaining tax amount prior to the amendment.
3. Application of retrospective effect of the Circular dated 28.10.2003 on tax liability and interest.
4. Correct understanding and application of the legal provisions by the Tribunal and first appellate authority.

Analysis:
The case involved a registered dealer who was a work contractor under the U.P. Trade Tax Act for Assessment Years 2000-2001 and 2001-2002. The dealer's inter-state purchase of raw material exceeded five per cent of the contract amount during these years. Initially, a Circular allowed a composition fee of one per cent if the inter-state purchase exceeded five per cent, subject to tax liability on the excess amount. However, an amendment on 28.10.2003 introduced an option to pay three per cent composition fee, exempting the dealer from tax liability. The Assessing Officer calculated the tax based on the amended scheme, including interest retrospectively. The first appellate authority ruled that interest was payable only after 28.10.2003.

The Tribunal, on the Revenue's appeal, upheld the Assessing Officer's decision, leading to the revisionist challenging the imposition of interest on the remaining tax amount. The questions of law raised included whether interest could be imposed on the tax amount before the Circular's amendment and if the dealer could be held at fault for the delayed representation by the State Government. The High Court analyzed the effect of the 28.10.2003 amendment, clarifying that if the dealer opted for the three per cent composition fee post-amendment, no tax liability existed, thus no interest could be levied for the period before the amendment.

The Court emphasized that the Circular did not mention charging interest for the period preceding its date. It concluded in favor of the revisionist, setting aside the Tribunal's order and restoring the first appellate authority's decision. The revisionist was advised to seek a refund if interest had been paid as per the Assessing Officer's order. The Court highlighted the importance of correctly interpreting legal provisions and applying the retrospective effect of amendments. Ultimately, the revisions were allowed with no order as to costs.