2015 (2) TMI 968 - HC - VAT and Sales Tax

Deferment & Exemption from sales tax - Mode of computation of notional sale tax liability - Whether Rule 2 (xxi) (ii) of the Rules which provides for calculation of notional sale tax liability by including branch transfers, fastens a liability to pay tax on branch transfers or merely provides a methodology for calculating notional tax liability for the purpose of achieving the amount of deferred tax - Held that - Admittedly, branch transfers outside the State of Punjab are exempted from the payment of sales tax. The State of Punjab has from time to time, notified schemes for deferment and exemption from payment of sales tax and for the said purpose, has enacted Section 10-A of the 1948 Act. A perusal of Section 10-A of the 1948 Act, reveals that the State Government may defer the payment of tax due if it is necessary or expedient to do so in the interest of industrial development subject to such conditions as may be prescribed. Admittedly, branch transfers outside the State of Punjab are not exigible to sales tax. A taxing statute imposes tax by enacting a taxing provision that sets out the taxing event. The exigibility of a transaction to tax must flow from the statute and, therefore, requires legislature to enact a specific provision setting out the contours of the event/transaction that would invite tax. If liability to pay tax is not set out in the parent statute, a rule, a policy, an instruction or a clarification cannot whether by intent or by interpretation, be used to impose a tax. The words subject to such conditions used in Section 10-A of the Act while referring to the deferment, cannot be construed to confer power to prescribe a fresh tax by way of a rule. It would also be appropriate to point out that the words and liable to tax used in the explanation and the words on the presumption that these transactions are exigible to tax under the aforesaid Act used do not lend themselves to an interpretation that raises them to the status of a charging provision thereby imposing a fresh charge or tax rendering an assessee exigible to a tax that is not imposed by the parent statue. It is, therefore, apparent that Rule 2(xxi) of the Rules is a provision that aids and assists the assessee and the State in calculating notional tax liability for deferment and empowers the State Government while calculating the limit of deferment to include sale tax on branch transfers outside the State of Punjab on a presumption that they shall be deemed to be taxable but only for the purpose of calculating the quantum of deferred tax achieved by the assessee. The proviso cannot whether by interpretation or by reference to the presumption be assigned the status of a taxing provision rendering an assessee liable for a taxing event which is exempted under the parent statute i.e. the 1948 Act. Consequently, we allow the writ petition as well as the appeal, set aside the impugned orders and remit the matter to the assessing officer to decide the matter afresh and in accordance with law. - Decided in favour of assessee.

Issues Involved:
1. Validity of Rule 2(xxi) of the Punjab General Sales Tax (Deferment & Exemption) Rules, 1991.
2. Interpretation of "notional sales tax liability" under Rule 2(xxi).
3. Demand of sales tax on branch transfers outside the State of Punjab.
4. Jurisdiction of the Value Added Tax Tribunal in challenging the vires of the Rules.

Detailed Analysis:

1. Validity of Rule 2(xxi) of the Punjab General Sales Tax (Deferment & Exemption) Rules, 1991:
The petitioner challenged Rule 2(xxi) of the Punjab General Sales Tax (Deferment & Exemption) Rules, 1991, claiming it to be ultra vires. The State of Punjab contended that the rule provides a methodology for calculating "notional sales tax liability," including branch transfers, and is thus valid. The court examined whether this rule imposes an actual tax liability or merely prescribes a method for calculating notional tax liability for the purpose of determining the amount of deferred tax.

2. Interpretation of "Notional Sales Tax Liability" under Rule 2(xxi):
The petitioner argued that Rule 2(xxi) does not create an actual liability to pay tax on branch transfers, which are exempt under the Punjab General Sales Tax Act, 1948. The court analyzed the language of Rule 2(xxi), noting that the term "notional" implies a fictional amount calculated to determine the quantum of deferment. The court emphasized that a notional liability should remain fictional and not transform into a real tax liability unless explicitly stated in the parent statute.

3. Demand of Sales Tax on Branch Transfers Outside the State of Punjab:
The petitioner was served notices demanding sales tax on branch transfers outside Punjab. The court noted that branch transfers outside Punjab are exempt from sales tax under the 1948 Act. The court held that Rule 2(xxi) and its proviso, which prescribes a method for calculating notional tax liability, cannot be interpreted to impose an actual tax liability on branch transfers. The court concluded that the rule only aids in calculating notional tax liability for deferment purposes and does not create a new tax liability.

4. Jurisdiction of the Value Added Tax Tribunal in Challenging the Vires of the Rules:
The petitioner's appeal to the Value Added Tax Tribunal was dismissed on the grounds that the tribunal does not have jurisdiction to challenge the vires of Rule 2(xxi). The court acknowledged this limitation and proceeded to address the validity of the rule itself. The court ultimately found that Rule 2(xxi) cannot be used to impose a tax on branch transfers outside Punjab, as such an imposition must be explicitly stated in the parent statute.

Conclusion:
The court allowed the writ petition and the appeal, setting aside the impugned orders. The matter was remitted to the assessing officer for a fresh decision in accordance with the law. The court clarified that Rule 2(xxi) of the Rules is intended only for calculating notional tax liability for deferment purposes and does not impose an actual tax liability on branch transfers outside Punjab.

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