2018 (8) TMI 600 - HC - VAT and Sales Tax

Imposition/liability of interest under Section 8(1) of the U.P. Sales Tax Act, 1948 - purchase of Opium - Section 3-AAAA of the Act. Held that - Admittedly the revisionist is a Union of India undertaking and it deals in procurement, distribution as well as export of Opium its derivatives and life savings medicines and exportation thereof - The admitted fact that the assessing authority has passed the assessment orders for all the assessment year in question in the year 1979 and thereafter. No tax was admitted by the revisionist Union of India as it disputed the applicability of the provisions of the Act on the ground that the revisionist is not a dealer, is not liable to tax in view of Article 285 of the Constitution of India and that the procurement of Opium and sales and manufactured product is not liable to tax. The facts in the present case prima facie establishes that in fact the revisionist has never admitted any liability of purchase tax. It was not the tax which was admittedly payable by the revisionist - the revisionist in fact has agitated its claim before the assessing authority by filing an application under Section 22 as such has disputed its liability from very inspection/binning. In this view of the matter, the same cannot be treated to be admitted tax or tax admittedly payable for the purpose of Section 8(1) of the Act. There was a bona fide dispute raised by the revisionist regarding liability for tax thereon, thus, it cannot be said to be its admitted taxable turnover and, therefore, there is no liability for payment of interest under Section 8(1) of the Act - The revision petitions are allowed and the assessing authority is directed to redetermine the interest in view of the provisions of Section 8(1-A) read with section 8(1-B) of the Act. Revision petition allowed by way of remand.

Summary

Issues Involved:
1. Imposition/liability of interest under Section 8(1) of the U.P. Sales Tax Act, 1948.
2. Applicability of the U.P. Sales Tax Act, 1948 to the revisionist.
3. Classification of the revisionist as a dealer.
4. Exemption under Article 285 of the Constitution of India.
5. Taxability of procurement and sales of Opium.

Issue-wise Detailed Analysis:

1. Imposition/liability of interest under Section 8(1) of the U.P. Sales Tax Act, 1948:
The core issue revolves around the imposition of interest on the delayed payment of tax by the revisionist. The revisionist argued that the tax was not "admittedly payable" as they disputed the tax liability from the beginning, and the demand for interest was raised belatedly. The court noted that the revisionist had disputed the applicability of the tax law and had not admitted any tax liability in their returns. The court referenced multiple judgments, including those in M/s Annapurna Biscuit Company vs. State and others and Bharti Airtel Ltd. vs. State of U.P., which supported the view that interest could not be levied on disputed tax liabilities. The court concluded that since the tax was not admitted and was paid under protest, no interest under Section 8(1) could be levied.

2. Applicability of the U.P. Sales Tax Act, 1948 to the revisionist:
The revisionist contended that the U.P. Sales Tax Act, 1948 did not apply to them as they were not a dealer and their transactions were not taxable. The assessing authority, however, treated the revisionist as a manufacturer and a dealer, thereby subjecting them to tax under Section 3-AAAA of the Act. The court upheld the assessing authority's classification but acknowledged the revisionist's consistent dispute over this applicability.

3. Classification of the revisionist as a dealer:
The revisionist argued that they were not a dealer and thus not liable for tax. However, the assessing authority classified them as a dealer based on their activities of procurement and distribution of Opium. The court referenced the division bench's decision, which upheld the validity of the provisions and the classification of the revisionist as a dealer under the Act.

4. Exemption under Article 285 of the Constitution of India:
The revisionist claimed exemption from state taxes under Article 285 of the Constitution, which exempts Union property from state taxation. The court, referencing the division bench's judgment, clarified that sales tax is not a tax on goods but on the act of sale and purchase, and thus, the exemption under Article 285 did not apply. The court cited precedents, including the Supreme Court judgment in State of Punjab vs. Union of India, to support this interpretation.

5. Taxability of procurement and sales of Opium:
The revisionist argued that the procurement of Opium was not a taxable purchase as it was controlled by the government under the Opium Act, 1857. The court, referencing the division bench's judgment, held that the procurement from cultivators constituted a purchase transaction and was thus taxable. The court dismissed the revisionist's argument that the transaction was not a sale.

Conclusion:
The court quashed the Tribunal's order dated 21.6.2006, allowed the revision petitions, and directed the assessing authority to redetermine the interest in light of the provisions of Section 8(1-A) read with Section 8(1-B) of the Act. The court held that the revisionist was not liable for interest under Section 8(1) as the tax was not "admittedly payable."