2019 (9) TMI 575 - HC - VAT and Sales Tax

Set off of tax paid on purchase of raw materials used in the manufacture of tubular poles - Claim rejected on the reasoning that the assessee had not raised any such claim in its return and, therefore, it was not permissible to grant the same at the stage of assessment - forfeiting the amount of the tax under Section 29-A(2) of the Act - HELD THAT - To take the benefit of Section 4-BB of the Act, plainly, the assessee was required to make that deduction, at that stage, and not later. Then, looking at the notification no. 2339 dated 22.10.1996, read with notification no. 1223 dated 22.5.1998, under the conditions for grant of benefit of set off, it was clearly stipulated by way of condition no. 3 that it was permissible to the manufacture (of notified goods) to claim such deduction, by way of an option to the payment of full tax on sale of such goods. It was not compulsary for that manufacturer to necessarily avail set off. The reasoning given by the Tribunal apart, it does not appear possible to contemplate a situation where a claim of set off may have been raised by the assessee after it had failed to make a deduction of tax payable on the sale of tubular poles and it had charged full tax @ 4% on sale of tubular poles. Thus, notwithstanding full compliance made by the assessee, in payment of tax on purchase of raw material and charge of tax on sale of tubular pipes, it lost the right to claim the set off under Section 4-BB of the Act upon opting to charge full tax on sale of tubular pipes, instead of deducting the tax paid on purchase of raw material from the tax payable on the sale of tubular pipes. The subsequent events of the timing of the claim raised during assessment proceedings remained inconsequential as the scheme of set off was optional and the assessee must be held to have necessarily opted out of it by choosing to charge full tax on sale of tubular pipes. Revision dismissed.

Summary

Issues:
1. Whether the assessing authority was justified in forfeiting the tax amount despite the applicant being entitled to set off under Section 4-BB of the Act.
2. Whether the Tribunal correctly held that the refund cannot be forfeited under Section 29-A(2) of the Act.
3. Whether the assessing authority was right in denying the set off under Section 4-BB of the Act due to the timing of the claim.

Analysis:
1. The revisions were filed against the Tribunal's order disallowing the applicant's claim for set off under Section 4-BB of the U.P. Trade Tax Act, 1948. The assessing officer rejected the claim as it was not raised in the return. The first appellate authority allowed the claim, stating no restriction on when the claim could be made. The Tribunal, however, held that the set off cannot be used to retain excess amounts by the dealer. The applicant argued that the law did not mandate the claim to be made at the return stage and that the set off should have been granted during assessment proceedings.

2. The Tribunal's decision was challenged on the grounds that the assessing authority forfeited the tax amount despite the applicant being eligible for set off. The applicant contended that the Tribunal misdirected itself by not reversing the appellate authority's finding. Legal precedents were cited to support the argument that admission of tax liability does not prevent the assessee from claiming set off.

3. The Court analyzed Section 4-BB of the Act, which allows set off for tax paid on raw materials used in manufacturing notified goods. The notifications specified conditions for granting set off, including the option for manufacturers to claim deduction or pay full tax on sale of goods. It was established that the applicant, by choosing to charge full tax on the sale of goods instead of deducting tax paid on raw materials, opted out of the set off scheme. The Court held that the applicant lost the right to claim set off by not making the necessary deductions at the time of sale, rendering subsequent claims during assessment proceedings irrelevant.

In conclusion, the Court dismissed the revisions, stating that the applicant lost the right to claim set off under Section 4-BB by opting to charge full tax on the sale of goods instead of availing the set off scheme. The Court's decision was based on the optional nature of the set off and the applicant's failure to fulfill the conditions for claiming set off.