2016 (12) TMI 1098 - HC - VAT and Sales Tax

Whether in the facts and circumstances of the case on combined reading of Section 14(6), Section 24 and Rule 33, can interest be charged from the contractor for late deposit of TDS by contractee - Held that - Rule 33(5) of the Rules provides that the amount of tax deducted by a contractee is to be paid by him to the department within 15 days of the close of the month - the payee to whom certificate of deduction and payment of tax has been furnished, shall be entitled to take credit thereof subject to verification of documents and correctness of the certificate - Merely on presumption about deduction or payment of tax by the contractee on his behalf, a contractor cannot absolve himself from liability to pay tax as per the returns filed - Even if there is delayed payment of tax by the contractee, the contractor shall be entitled to claim benefit thereof at the time of framing of assessment and circulation of interest and entitlement of refund, if any, shall be determined at that time - As the assessing authority found that the tax had not been deposited in time, interest on account of delayed payment of tax was levied - On account of proofs attached by the appellant along with the returns showing payment of tax on his behalf by the contractees, deduction to the tune of ₹ 94,05,576/- was granted - Appeal disposed of.

Summary

Issues Involved:
1. Whether interest can be charged from the contractor for late deposit of TDS by the contractee.
2. Whether the contractor is liable for timely deposit of TDS deducted by the contractee.

Issue-wise Detailed Analysis:

1. Interest Charge for Late Deposit of TDS by Contractee:
The appellant, a contractor, contested the imposition of interest for late deposit of TDS by the contractee. Under Section 24 of the Haryana Value Added Tax Act, 2003, the contractee is responsible for deducting tax from payments to contractors and depositing it with the department. The contractor receives credit for the amount reflected in the certificate issued by the contractee. The assessment for the appellant for the year 2006-07 determined a works contract tax of ?95,02,695/-, with verified payments of ?94,05,576/-. Interest was levied under Section 14(6) of the Act due to late deposit by the contractee. The appellant argued that the liability for interest should fall on the contractee, who acts as an agent of the government, and not on the contractor. The appellant cited Rule 33 of the Haryana Value Added Tax Rules, 2003, which outlines the procedure for TDS deduction and deposit by the contractee. The appellant emphasized that the contractee should be penalized for any default in deduction or deposit of tax, as the contractor has no means to ensure compliance by the contractee.

2. Contractor's Liability for Timely Deposit of TDS:
The appellant argued that the contractor should not be held liable for the timely deposit of TDS deducted by the contractee. The contractor's responsibility is to file returns and attach the certificate issued by the contractee showing the deposit of tax. The appellant referred to Section 14 of the Act, which mandates the filing of returns and payment of tax, and Section 24, which outlines the contractee's duty to deduct and deposit tax. The appellant contended that interest should be charged from the contractee under Section 14(2) of the Act, as the contractee is responsible for the delay. The State argued that the contractor is liable to pay tax and file returns, and in case of default, the contractor is liable for interest and penalty. The collection of tax from the contractee is considered an advance payment on behalf of the contractor. The State emphasized that the contractor's liability for interest is independent of the contractee's penalty for default.

Judgment:
The court analyzed the relevant provisions of the Act and the Rules, including Sections 14 and 24 of the Act and Rule 33 of the Rules. It concluded that the primary liability for payment of tax lies with the contractor, who must file periodic returns and pay tax accordingly. The contractee's role in deducting and depositing tax is to ensure advance collection for better compliance. The contractor is entitled to claim credit for the tax paid by the contractee, but the contractor cannot absolve himself from liability to pay tax based on presumptions about the contractee's compliance. The liabilities for interest and penalty on the contractor and the contractee are independent and not set off against each other. The court held that if the contractor has attached a certificate showing payment of tax by the contractee, but the tax was not actually paid and the certificate was bogus, the contractor's liability may differ based on the facts of the case.

In the appellant's case, the court found that the appellant was liable to pay tax as a contractor, with receipts amounting to ?23,75,67,368/-. The tax payable was ?95,02,695/-, with a deduction of ?94,05,576/- based on certificates provided. The assessing authority levied interest due to delayed tax payment, with delays running up to 1,384 days. The court concluded that the appellant's case should be dealt with according to the law laid down in the judgment and disposed of the appeal accordingly.