2021 (4) TMI 261 - HC - GST

Discharge of GST liability - Denial of transition of accumulated credit in respect of Tax Deducted at Source - provision rendered unworkable or unviable by reason of a particular interpretation - determination of nature of the amount deducted - carry forward of credit as per Income Tax Act and Sales Tax Act - HELD THAT - In SAIL V. State of Orissa 2000 (2) TMI 729 - SUPREME COURT three Judges of the Supreme Court found the provisions of Section 13-AA of the Orissa Sales Tax Act,1947, to be beyond the powers of the State Legislature and thus ultra vires. In Nathpa Jhakri Joint Venture 2000 (3) TMI 949 - SUPREME COURT , the appellant questioned the validity of Section 12 A of the Himachal Pradesh General Sales Tax Act, 1968 and connected Rules, that provided for a deduction of an amount from the bills or invoices of works contractors. The provision had been upheld by the High Court. The provisions of Section 13 are not under challenge and rightly so, since in drafting Section 13, the rationale of aforesaid judgments and many others that have taken a similar view, stand incorporated. Section 13, has, in directing the deduction of tax at source, specifically excluded from its purview three categories of transactions, labour contracts, inter-state transactions, and exempt transactions that stand outside the pale of taxation. Section 13, thus passes the test of constitutionality and the inference that flows from this conclusion is that any amount deducted in line with the mandate of Section 13, have to be with the authority of law - the nomenclature of the terms employed cannot be emphasized, since the relevant statutory provisions, rules and forms use terms such as deposit, amount, tax and other similar terms, interchangeably. There is a distinction between the Income Tax Act and the Sales Tax Act insofar as the concept of carry forward of credit does not form part of the scheme of the IT Act. Under the IT Act, an amount paid as advance tax or amount deducted as tax will have limited use only qua the relevant assessment year - Form P determines the refund after adjusting the monthly payments made towards the final tax liability. This has no bearing on the scheme of tax credit in vogue under the Sales Tax Act that provides for carry forward of credit from year to year, such carry forward and accumulated credit automatically reflected in the account of the assessee with the department and automatically set off against output tax liability. Thus, any deduction made towards anticipated tax liability would assume the character of tax and will not change or fluctuate depending on whether it is held as credit or whether it is an adjustment against tax liability. To attribute such fluctuating character to an amount would distort the scheme of taxation and cause much difficulty in the interpretation on the various ancillary provisions. The interpretation of the provision must be such that it lends itself to certainty in its conclusion. The petitioners held to be entitled to transition TDS under the TNVAT Act in terms of Section 140 of the TNGST 2017 - Petition allowed.

Summary

Issues Involved:
1. Denial of transition of credit for Tax Deducted at Source (TDS) under the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act) to the Tamil Nadu Goods and Service Tax Act, 2017 (TNGST Act).
2. Interpretation of TDS as tax under the TNVAT Act and its eligibility for transition under Section 140 of the TNGST Act.
3. Examination of statutory provisions and judicial precedents related to TDS and its treatment as tax.

Detailed Analysis:

Issue 1: Denial of Transition of Credit for TDS
The petitioners, assessees under the TNGST Act, challenged the denial of transition of accumulated TDS credit from the TNVAT regime to the GST regime. The Commercial Tax Authorities issued notices and confirmed orders denying this transition. The petitioners argued that the accumulated TDS credit should be transitioned into their accounts for set-off against GST liabilities, which was denied by the authorities.

Issue 2: Interpretation of TDS as Tax
The petitioners contended that TDS under Section 13 of the TNVAT Act is a form of tax. They argued that TDS is a mechanism for advance tax collection and should be considered as tax for the purposes of Section 140(1) of the TNGST Act. They cited Article 265 of the Constitution of India, which mandates that the collection of any amount styled as 'tax' must be under the authority of law. The petitioners supported their argument with various judicial precedents, asserting that TDS is a compulsory exaction and thus constitutes a tax.

The Revenue countered that the amount deducted as TDS does not constitute a tax at the time of collection. They argued that the remittance assumes the character of tax only upon adjustment towards tax liability. The Revenue relied on the Supreme Court's judgment in Sant Lal Gupta and Others Vs. Modern Co-operative Group Housing Society Ltd. and Others (2010 13 SCC 336) to support their stance. They also compared the provisions of the Income Tax Act, where advance tax is deemed as tax by legislative fiction, which is not the case under the TNVAT Act.

Issue 3: Examination of Statutory Provisions and Judicial Precedents
The court examined Section 13 of the TNVAT Act, which mandates the deduction of tax at source for works contracts and its implications. Section 140 of the TNGST Act, which provides for the transition of input tax credit, was also scrutinized. The court noted that the purpose of Section 13 is to facilitate the advance collection of tax, and any amount deducted under this section assumes the character of tax.

The court referred to various judicial precedents, including SAIL Vs. State of Orissa, Nathpa Jhakri Joint Venture Vs. State of HP, and KEC International Limited Vs. State of Karnataka, which supported the view that TDS constitutes a tax. The court also distinguished the provisions of the Income Tax Act from the Sales Tax Act, noting that the concept of carry forward of credit is unique to sales tax laws.

The court concluded that any deduction made towards anticipated tax liability under Section 13 of the TNVAT Act assumes the character of tax. Consequently, the petitioners are entitled to transition TDS credit under Section 140 of the TNGST Act. The impugned orders denying the transition of TDS credit were set aside, and the petitioners were allowed to transition the TDS credit.

Conclusion:
The court allowed the writ petitions, holding that the petitioners are entitled to transition TDS credit under the TNVAT Act to the TNGST Act. The impugned orders were set aside, and the connected miscellaneous petitions were closed with no order as to costs.