2016 (11) TMI 751 - HC - VAT and Sales Tax

Vires of Section 42(4) and 42(5) of U.P. Value Added Tax Act, 2008 - Validity of Rule 70(5) of U.P. Value Added Tax Rules, 2008 - Provincial Tax under Section 54(1)(1) - late payment of tax - imposition of penalty - eligibility certificate under Section 4-A of U.P. Trade Tax Act, 1948 - petitioner was entitled to avail aforesaid exemption up to 15.02.2010 or till the amount of exemption of tax reaches to the extent of ₹ 959,51,76,417/-, which ever is earlier - compliance of deposit of net tax to which petitioners were entitled for exemption with regard to period of January 2008 to June 2008 was practically impossible for the reason that Section 42 for the first time making such different procedure came to be enacted on 16.07.2008 and relevant rule came to be enacted on 30.01.2009 by which date time for deposit of tax along with return had already elapsed. Held that - When issues of a statute is challenged, Court presumes constitutionality unless shown otherwise but presumption cannot go to uphold a provision whereof compliance is impossible by any person and still that statute hold one guilty and further liable of penalty and other dues for non compliance. The above doctrine and also exposition of law that a statute cannot require performance of something which is impossible and places a burden upon a person for no fault of him has also been considered in M/s. D.C.M. Ltd. and others Vs. State of U.P. And others Writ C No. 9513 of 1989 - In view of above exposition of law, when we look into the amended Rule 70(5) of Rule, 2008 as substituted by U.P. VAT (First Amendment) Rules, 2009, we find that rule framing authority, while framing a rule and enforcing the same on 30.01.2009, has required concerned units to deposit tax and submit return between July 2008 to December 2008 which is ex-facie irrational, unreasonable and improbable. When information by way of framing Rules is being given on 30.01.2009, no one can be expected to comply in retrospect i.e. during July 2008 to December 2008. In our view, Sub-rule (5) of Rule 70 as substituted by U.P. VAT (First Amendment) Rules, 2009 in Rules, 2008 is apparently irrational, arbitrary, illegal and unreasonable, hence violative of Article 14 of the Constitution. We have no hesitation in striking down the same, being wholly illegal, absurd, unfair and unreasonable, thus, violative of Article 14 of the Constitution. Consequently, sub-rules (7) to (11) of Rule 70 in respect of net tax of January 2008 to June 2008 would render inoperative for the reason that they would come into operation only when a valid sub-Rule (5) is in existence but when we strike down sub-rule (5), consequences provided under sub-rule (7) of Rule 70 also cannot be complied. Therefore, the same would become inoperative till a valid provision providing a rational procedure for compliance under Section 42(4)(d) is made by competent rule framing authority. Since dispute relates to deposit of tax from January 2008 to June 2008 and sufficient period had already elapsed since then, in order to mitigate and avoid any further scope of litigation and in the interest of both the parties, we provide and permit petitioners to deposit requisite amount of tax along with return within two months from today,if not already deposited, and if the said direction is complied with, respondent tax authorities shall treat said deposit and submission of return as due compliance of requirement of Section 42(4)(d) of Act, 2008 as amended by Amendment Act, 2008 and proceed accordingly for the purpose of refund of tax as provided under amended Section 42(5). If deposit has already been made, the same shall be treated as a deposit of tax in time then respondents shall proceed accordingly. Petition disposed off - decided partly in favor of petitioner.

Summary

Issues Involved:
1. Vires of Section 42(4) and 42(5) of U.P. Value Added Tax Act, 2008.
2. Validity of Rule 70(5) of U.P. Value Added Tax Rules, 2008.
3. Imposition of penalty and interest for delayed tax payments.
4. Practicality and reasonableness of compliance with amended provisions.

Detailed Analysis:

1. Vires of Section 42(4) and 42(5) of U.P. Value Added Tax Act, 2008:
The petitioners challenged the constitutionality of Section 42(4) and 42(5) of the U.P. VAT Act, 2008, arguing that the amended provisions were irrational and arbitrary. The court held that the amended scheme of deposit of net amount of tax along with the return is neither illegal nor arbitrary. The legislature has the competence to amend the statute and change its policy. Therefore, Section 42(4) and (5) as enacted by the Amendment Act, 2008, cannot be said to be ultra-vires and are upheld as valid.

2. Validity of Rule 70(5) of U.P. Value Added Tax Rules, 2008:
The court examined Rule 70(5) as substituted by U.P. VAT (First Amendment) Rules, 2009, which required industrial units to deposit tax payable for the period January 2008 to June 2008 by specific dates in 2008. The court found this requirement to be irrational and unreasonable because the rule was framed and enforced on 30.01.2009, making it impossible for the petitioners to comply retroactively. The court held that Rule 70(5) is invalid, irrational, and unreasonable, thus violative of Article 14 of the Constitution, and struck it down.

3. Imposition of Penalty and Interest for Delayed Tax Payments:
The court noted that due to the impracticality of complying with the amended provisions within the prescribed time, the imposition of penalty and interest under Section 54 and Section 33(2) of the Act was unjust. The court quashed the impugned notices and orders issued by the taxing authorities for the period of January 2008 to June 2008, as the petitioners could not have complied with the amended provisions that were enacted later.

4. Practicality and Reasonableness of Compliance with Amended Provisions:
The court emphasized that the law does not compel a person to perform an impossible task. It cited several legal maxims and precedents, such as "Lex Non Cogit ad impossibilia" (the law does not compel the doing of impossibilities), to support its decision. The court held that compliance with the amended Section 42(4)(d) and Rule 70(5) was practically impossible for the petitioners, as the time for compliance had already expired before the rules were framed.

Conclusion:
The court concluded that the amended Section 42(4) and (5) are valid, but Rule 70(5) as substituted by U.P. VAT (First Amendment) Rules, 2009, is invalid and struck it down. The court quashed the impugned notices and orders for penalty and interest. It provided the petitioners with a two-month period to deposit the requisite amount of tax along with the return, treating it as due compliance with Section 42(4)(d) of the Act. If the petitioners comply, the tax authorities shall proceed accordingly for the refund. If not, the petitioners will be deemed guilty of non-compliance, and the relevant provisions will become operative with due consequences. The writ petitions were partly allowed, with no order as to cost.