2022 (6) TMI 201 - HC - VAT and Sales Tax

Computation of compounding fee on the royalty amount - sand mining contract - Section 7-D of The U.P. Trade Tax Act, 1948 - HELD THAT - In the matters of compounding of tax liability under Section 7-D of the Act, the Court has consistently interpreted the statutory provision in the manner as may allow the same to be treated as contractual. Remarkably, the actual turnover does not become the basis of determination of the tax liability. Upon agreement reached between the parties, a lump sum is accepted in lieu of the actual tax liability that may otherwise arise. In the present facts, the compounding scheme does not itself specify the rate of compounding fee to be 22% of the royalty amount for the entire period during which such scheme remained in force. It only provided, in the event of the applicant being admitted to that scheme of compounding, he may remain compelled to such benefit for all subsequent periods during which the scheme may remained in force. As to the amount of compounding fee to be calculated at the percentage rate of royalty, the State did not commit to maintain @ 22%. In fact, by virtue of the proviso to Section 7-D of the Act, the State retained the power to vary that rate. The Tribunal has not committed any error in rejecting the claim made by the applicant. Unless there was an enabling statutory provision or other law or unless there was a specific clause in the Compounding Scheme, the claim made by the present applicant would remain without basis. Revision dismissed.

Summary

Issues:
1. Interpretation of compounding scheme under Section 7-D of The U.P. Trade Tax Act, 1948.
2. Determination of compounding fee for sand mining contract.
3. Requirement of separate applications for each Assessment Year.
4. Authority to vary the rate of compounding fee.

Issue 1: Interpretation of compounding scheme under Section 7-D of The U.P. Trade Tax Act, 1948.
The revisionist argued that under the Compounding Scheme, a composite application was made for multiple Assessment Years, and the compounding fee was specified at 22% of the royalty amount. However, the Tribunal upheld the computation of compounding fee at 25% for a specific year. The Court emphasized that the compounding scheme does not mandate a fixed rate of compounding fee throughout its duration. It highlighted that the agreement between parties determines the lump sum accepted in lieu of the actual tax liability.

Issue 2: Determination of compounding fee for sand mining contract.
The revisionist contended that the compounding fee should be calculated at 22% of the royalty amount based on the Compounding Scheme. The State, however, retained the power to vary the rate of compounding fee as per the proviso to Section 7-D of the Act. The Court held that in the absence of a specific clause in the Compounding Scheme or enabling statutory provision, the State had the authority to adjust the compounding fee rate.

Issue 3: Requirement of separate applications for each Assessment Year.
The revisionist argued that a composite application was submitted for multiple Assessment Years, and separate orders were passed for each year. However, the State contended that separate contracts were required for each Assessment Year. The Court noted that while the applicant was entitled to the benefit of compounding, separate applications or contracts for each year were necessary as per the statutory provisions.

Issue 4: Authority to vary the rate of compounding fee.
The Court emphasized that the State had the power to vary the rate of compounding fee under the proviso to Section 7-D of the Act. It clarified that unless there was a specific clause in the Compounding Scheme or enabling statutory provision, the State's discretion to adjust the compounding fee rate remained valid. Consequently, the Tribunal's decision to reject the revisionist's claim was upheld, and the revision was dismissed for lacking merit.