2023 (3) TMI 796 - HC - VAT and Sales Tax

Validity of assessment orders - levy of interest u/s 7(5) of Orissa Entry Tax (OET) Act, on the balance unpaid entry tax for the period prior to 2017 inasmuch as the amount of 1/3rd was treated as deposit till pronouncement on 28.03.2017 - Whether, pursuant to direction of this Court the Committee having recommended not to enforce penalty for non-payment or withholding of entry tax, except in cases of suppression, the taxable persons/dealers are liable to pay interest under Section 7(5) for the period from 2010 (interim Order dated 03.02.2010 being passed by the Supreme Court in STATE OF ORISSA ORS. VERSUS M/S. RELIANCE INDUSTRIES LTD. ORS. 2010 (2) TMI 1305 - SUPREME COURT to 2017 (till 28.03.2017, i.e, date on which the Division Bench of Supreme Court allowed the appeals of the State of Odisha)? HELD THAT - Harmonious reading of the various provisions along with charging provision, i.e., Section 3 of the OET Act gives clear indication that whereas the entry tax is exigible on entry of goods specified in the Schedule appended to the OET Act into the local area for consumption, use or sale therein and return disclosing tax payable is required to be furnished as per sub- section (1) of Section 7. It is provided under sub-section (10) thereof that each and every return is to be scrutinized by the Assessing Authority. If mistake is detected as a result of scrutiny, the Assessing Authority is vested with power to proceed with the matter against the dealer as provided under sub-section (11). Thus, it is explicit that detection of mistake in return upon scrutiny triggers action against the dealer asking it to make payment of the extra amount of tax along with the interest as per the provisions of this Act . The OET Act provides for levy of interest under sub-section (5) of Section 7. No other provision empowering Authority to levy interest is brought to the notice of this Court by any of the parties. In the cases at hand, it is the consistent pleading of the petitioners that as this Court observed at RELIANCE INDUSTRIES LIMITED VERSUS STATE OF ORISSA (AND OTHER CASES) 2008 (2) TMI 825 - ORISSA HIGH COURT that the State of Odisha is not competent to levy entry tax on the goods brought from outside and not manufactured or produced within the State, the dealers are not required to pay entry tax. However, on the basis of STATE OF ORISSA ORS. VERSUS M/S. RELIANCE INDUSTRIES LTD. ORS. 2010 (2) TMI 1305 - SUPREME COURT of the State of Odisha by the Supreme Court they were required to deposit 1/3rd of tax due as disclosed in the returns. The Hon ble Court made it clear that such payment is treated to be deposit , but not tax . It seems there is obvious reason for not undertaking scrutiny of returns during 2010-17. The Hon ble Supreme Court granted stay of operation of paragraph 30 of said Judgment of this Court to the extent which spelt out that The State has no jurisdiction to impose tax on such goods imported from outside and are not manufactured within the State of Orissa. Therefore, the opposite parties may make scrutiny of the same and not realize entry tax on such goods . Though said interim order suffered modification vide Order dated 03.02.2010 by directing the dealers to deposit 1/3rd of the tax liability shown in the returns, the Assessing Authorities have not taken up each and every return for scrutiny. Therefore, it is not justified on the part of the Assessing Authorities to issue demand notice(s) in Form E-24 prescribed under Rule 10(6)(b) of the OET Rules as a result of scrutiny under sub-sections (10) and (11) of Section 7 of the OET Act that too in violation of observations made in Toyo Engineering 2011 (9) TMI 888 - ORISSA HIGH COURT . Following the ratio of Toyo Engineering (supra), this Court would have to remit the matter to the Assessing Authority, but considering that the same would not serve fruitful purpose at this distance of time holds that issue of notice in Form E-24 under Rule 10(6)(b) of the OET Rules is not in conformity with the statutory requirement. Since the balance amount of tax due as per disclosure made in the return(s) is known to the petitioner, setting aside the notice in Form E-24 and remanding for computation of tax liability to the Taxing Authority would enure to the benefit of none. Therefore, the petitioner is required to determine its own liability as per self-assessed return(s) already filed. Levy of interest under Section 7(5) of the OET Act - HELD THAT - It is trite that provision for interest is to be construed as substantive law and not machinery provision. Ordinarily charging section which fixes liability is to be strictly construed. But the rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must be so construed as would effectuate the object and purpose of the statute and not defeat the same. Any provision made for charging or levying interest on delayed payment of tax must be construed as a substantive law and not adjectival law. There is no ambiguity in holding that in the presence of the expression without sufficient cause in sub-section (5) of Section 7 of the OET Act and the petitioner(s) having justified by showing sufficient cause for failure to deposit amount of tax due along with the return, which cannot be treated as admitted tax in view of legal position contained in paragraph 30 of Reliance Industries Ltd., of Orissa High Court, interest under Section 7(5) of the OET Act is not chargeable on such turnover falling within ambit of portion the said Judgment. Whether Court can grant interest in exercise of jurisdiction under Article 226 of the Constitution of India? - HELD THAT - Interest is compensatory in character. Since by virtue of order of the Court entire amount of tax due was not discharged, such order should prejudice none. In the present case the petitioner(s) withheld 2/3rd of the tax due as disclosed in the return(s). The Hon ble Supreme Court while passing Order dated 03.02.2010 clarified that if State of Odisha loses, it would refund the amount deposited by the dealers along with interest. However, there was no proposition with regard to eventual losing of the petitioner(s). Nonetheless, the fact remains that the petitioner(s) could not succeed in the ultimate before the Supreme Court. Thus, there is warrant for an order from this Court granting compensation on the amount withheld since 2010 till 2017. Applying the principles for grant of interest at a rate fixed as compensation, this Court is of the considered opinion that since by virtue of interim orders of the Supreme Court of India and the orders in writ petition(s) by this Court following such interim orders, the State of Odisha was deprived of recovering 2/3rd of tax due relating to September, 2009 to February, 2017, the petitioner(s) is required to compensate the State of Odisha by making payment towards interest in the interest of justice and equity. Hence, writ of mandamus is liable to be issued in exercise of extraordinary power under Article 226 of the Constitution of India. Petition disposed off.

Summary

Issues Involved:

1. Validity of Assessment Order and Notices under the Odisha Entry Tax Act, 1999.
2. Instructions for Recovery Process.
3. Levy of Interest on Unpaid Tax.
4. Constitutionality of the Odisha Entry Tax Act, 1999.
5. Recovery of Balance Tax and Imposition of Penalty and Interest.

Summary:

1. Validity of Assessment Order and Notices under the Odisha Entry Tax Act, 1999:
The petitioner questioned the validity of the Assessment Order dated 11.11.2016 under Section 9C of the Odisha Entry Tax Act, 1999 (OET Act) for tax periods 01.04.2013 to 31.03.2015 and the subsequent notices in Form E-24 and E-8 for the periods 01.04.2015 to 30.04.2017, raising demands for deficit tax and interest at 1% per month. The court noted that the Taxing Authorities had not adhered to the statutory procedure as clarified in Toyo Engineering India Ltd. Vrs. Sales Tax Officer, (2012) 47 VST 109 (Ori), and thus, the notices issued in Form E-24 were quashed. The court directed the petitioner to determine its own liability as per self-assessed returns.

2. Instructions for Recovery Process:
The petitioner challenged the instructions issued by the Commissioner of Sales Tax for recovery of unpaid taxes based on the Supreme Court's Order in State of Odisha Vrs. Reliance Industries Ltd., SLP(C) No.14454-14778/2008. The court observed that the Taxing Authorities had not undertaken the exercise to verify the returns in conformity with the mandate provided under sub-sections (10) and (11) of Section 7 of the OET Act, thereby justifying the petitioner's non-payment of full tax due.

3. Levy of Interest on Unpaid Tax:
The court examined whether interest could be levied under Section 7(5) of the OET Act for the period 2010-2017. It was held that since the petitioner had sufficient cause for non-payment of full tax due, as per the interim orders of the Supreme Court, the levy of interest was not justified. The court directed the petitioner to pay the balance entry tax along with simple interest at 9% per annum from 28.03.2017.

4. Constitutionality of the Odisha Entry Tax Act, 1999:
The court referred to the judgment in Jindal Stainless Ltd. Vrs. State of Haryana, (2017) 12 SCC 1, which clarified the legal position on the constitutionality of entry tax laws. It was observed that the petitioner had acted in accordance with the interim orders of the Supreme Court and this court, and thus, there was no failure to pay the amount of tax due as per the return "without sufficient cause."

5. Recovery of Balance Tax and Imposition of Penalty and Interest:
The court directed the petitioner to pay the balance entry tax for the period 2010-2017 within sixty days, if not already paid, along with simple interest at 9% per annum. It was clarified that no penalty was to be enforced in respect of the subject matter falling within the purview of paragraph 30 of the Judgment in Reliance Industries Ltd., (2008) 16 VST 85 (Ori). The court also provided the petitioner the liberty to approach the Appellate Authority for any assessments framed under Section 9C or Section 10 of the OET Act.

In conclusion, the court disposed of the writ petitions with specific directions for the payment of balance tax and interest, while quashing the notices issued in Form E-24 and setting aside the order-in-revision. The parties were left to bear their own costs.